Here’s How The Exclusive Partnership With Disney Can Impact Netflix

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In late 2012, Netflix (NASDAQ:NFLX) signed an exclusive licensing deal with Disney, through which it gained streaming rights to all Disney theatrically released films starting  in 2016. In additional, Netflix gained streaming rights from 2013 to movies released directly to disk.   The benefits of this deal will be seen starting September this year, when Netflix will become the exclusive US Pay TV home for the latest films from Disney, Marvel, Lucasfilm and Pixar. While the company is refreshing a large part of its film catalogue ahead of the summer, when there is a 20% increase in movie watching by its US consumers, it is including exclusive content and removing a batch of non-exclusive titles.  This is in line with Netflix’s strategy of focusing on exclusive content to stay ahead of competition. Exclusive access to Disney’s movies will enhance Netflix’s offerings and should enable the company to attract and retain Disney fans. Given the box office success of Disney movies released in 2016, this should be a sizeable number of subscribers.  However Netflix will need to take several other steps to boost its slowing subscriber growth.

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Popularity Of Disney Movies Can Enable Netflix To Retain Subscribers

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Competition in the streaming media industry is intensifying in the U.S., with players such as Amazon focusing on content, including live streaming of sports, to attract subscribers. While all players are offering similar subscription rates, popular, original and exclusive content will be key to retain and grow subscribers. Disney has had an amazing run at the box office in 2016, indicating the popularity of its movies. Released in early 2016, Zootopia surpassed the $ 900 million mark at the global box office in April this year and became the highest grossing March release of all time in the U.S. In addition, Disney’s recently released  live action remake, a new version of The Jungle Book, earned a world-wide gross of nearly $ 240 million  within weeks of its release by performing particularly well in China and India.  Following the success of this live action adaptation, the company now has a long pipeline of live action fairy tales including a sequel to The Jungle Book, a Tinker Bell project and a 101 Dalmatians spin off.  The company is expecting a successful run at the box office for its upcoming movies Alice Through The Looking Glass and Pixar’s Finding Dory. An exclusive right to stream these movies will give Netflix a competitive edge and ensure that it retains and attracts subscribers who are Disney fans.

Netflix is facing a slowdown in subscriber growth in the U.S. The company added 2.23 million net members in the U.S. for Q1 2016, but issued a weak guidance of expecting to add only 0.5 million net members in the U.S. for Q2 2016. (Read Netflix Beats On Earnings But Provides Weak Subscriber Guidance). In Q12016, the company’s operating income declined almost 50% due to a significant increase in the cost of revenue and technology and development expenses. Netflix is walking the thin line of maintaining a steady subscriber growth without impacting profitability significantly. The exclusive content strategy will work in its favour if the company is able to spread the high costs over a huge subscriber base. The deal with Disney should work positively for the company, but it needs to take several other steps to generate a high subscriber growth.

 

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