Walt Disney (DIS) has decided it no longer needs Netflix’s advertising dollars. Disney, which plans to launch its Disney+ video service to rival Netflix, has banned it from advertising on its television networks. We believe that means two things. Let’s take a look.
First, Netflix loses access to Disney’s television audience
Disney reaches millions of consumers around the world through its television networks. Disney’s television reach got a boost after it purchased a collection of media and entertainment assets from 21st Century Fox.
In India alone, the Fox properties that Disney purchased reach over 700 million people. So, this advertising ban means that Netflix would lose access to hundreds of millions of potential customers. So, that could in turn slow Netflix’s growth at a time when it needs to expand its customer outreach. India is one of the markets where NFLX is still struggling to attract customers.
As we discussed in June, Netflix lags behind Hotstar and Amazon (AMZN) in India in terms of the number of video subscribers. Netflix (NFLX) recently introduced an inexpensive plan in India in a bid to boost uptake of its service in the country.
Second, Netflix would lose audience but Disney would lose money
Netflix is a big spender on television commercials. Advertising measurement firm iSpot.tv estimates that NFLX spent $100 million on television ads in 2018. About 13% of that sum went to Disney-owned networks. This means that the streaming giant contributed $13 million to Disney’s advertising sales in 2018. Now Disney has mostly shut off that ad revenue stream.
Bearing short-term pain for long-term benefits
Keeping its television networks open for Netflix ads meant Disney would continue to support Netflix. However, as it launches its Disney+ subscription video service, we believe Disney may have come to view accepting Netflix’s ads as supporting the competition.
Disney+ priced below Netflix in a price war
Rejecting Netflix ads isn’t the only step Disney has taken to apparently weaken its rival. It has also priced its Disney+ video service below Netflix’s fees in an apparent price war. Disney+ plans to launch on November 12 and would cost $6.99 per month. NFLX plans start at $8.99 per month in the US.
And Disney isn’t alone in trying to wage a price war against Netflix. Apple also has priced its Apple TV+ video service at $4.99 per month, well below Netflix’s prices.