Netflix’s Deal with Disney for Original Content



Netflix is leveraging Disney’s intellectual property

In the previous part of this series, we talked about Netflix’s (NFLX) popularity among its users. In this part of the series, we’ll look more deeply into how Netflix’s popularity is driven by its original content and by its deals with The Walt Disney Company (DIS).

Netflix had an increase of 0.9 million members in the US in 2Q15, exceeding the company’s internal forecast for an increase of 0.3 million subscribers. Netflix’s strong original programming is one major reason behind its higher-than-expected membership gains. This kind of content gives OTT (over-the-top) streaming services an edge over linear programming networks like CBS (CBS).

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Netflix struck an original content deal with Disney’s ABC Studios in the fall of 2013. As part of this deal, Disney’s ABC Studios is producing four live-action series for Netflix, leveraging characters from the Marvel Universe. The first of this series was Daredevil, which has shown good audience engagement. Disney’s other three serialized programs for Netflix will also include characters from the Marvel Universe.

As the above chart indicates, Netflix is leveraging Disney’s strong IP (intellectual property) portfolio to strengthen its own user base. In 2012, Netflix struck another deal with Disney, which specifies that, from 2016 onwards, Netflix will have the exclusive television rights for all Disney films released till the end of 2018. Netflix will now be able to offer a wide selection of TV shows and movies from the Disney stable, including the Marvel Universe and Pixar Studios, to its users.

Netflix and Disney partners and competitors

The deals between Netflix and Disney have of course made them strategic partners for content. But at the same time, these deals also put Netflix into competition with Hulu, another OTT player that is jointly owned by Disney, NBCUniversal (CMCSA), and Fox Entertainment Group.

You can gain a diversified exposure to Disney by investing in the Consumer Discretionary Select Sector SPDR ETF (XLY), which holds 7.3% of the stock.


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