Wedbush: Is TV streaming big enough for both Apple and Disney?

“Yes,” says analyst Daniel Ives, who estimates that together the two “stalwarts” could steal 10% of Netflix’ subscribers base.

From a note to clients that landed on my desktop Sunday:

This week marks another important potential turning point in the streaming wars when Iger and Disney officially launch their much anticipated streaming TV service on Tuesday, November 12th… With content being king and Netflix the clear leader in streaming with ~160 million subs worldwide, the goal of Disney and Apple is clearly shaking this leadership position as we continue to believe that 10%+ of Netflix’s installed base could be disrupted/higher churn by these two stalwarts entering the streaming landscape.

Our take on Apple streaming vs. Disney: With an installed base of ~900 million active iPhones worldwide, we believe Apple has an opportunity to gain 100 million consumers on the streaming front in the next 3-4 years. We note that Apple is offering Apple TV+ free for a year with the purchase of an Apple device to help stimulate demand for its trifecta of smartphones and build loyalty on the services, which we believe is a smart move. Apple has a compelling list of new shows (The Morning Show, For All Mankind) launching with only nine programs, although we believe Cook & Co. has committed ~$6 billion annually [!] to original shows/movies to beef up its streaming content ambitions going forward along with potential M&A (MGM, Lionsgate, Sony Pictures, A24).

Disney on the other hand has a whole other strategy as the company has a content library that is unmatched with a global consumer base that will be tapped through its theme parks and other vast distribution tentacles. With aggressive price points and an eye popping library of content we believe the House of Mouse will further flex its content muscles on streaming over the next few years.

My take: This is the second time Ives has estimated that Apple is spending $6 billion annually. Every other analyst I’ve read thinks it’s more like $6 billion total.

See also: Why Wedbush’s Daniel Ives raised his Apple price target to $265 (video)

6 Comments

  1. Robert Paul Leitao said:

    In my view, there’s plenty of room for Apple, Disney and other players in the streaming content markets. Consider what has been the annual household spend for cable services over the past several years and the addressable market and the potential revenue flow are mind-numbing numbers.

    At present Apple and Disney have different objectives. On a long-term basis I’m quite bullish on Disney. While it may take time and resources to build out the company’s DTC efforts and the massive Fox acquisition will take time to consolidate before its accretive to earnings, I consider from a long-term perspective the shares to be selling on the cheap.

    Within a few years Disney will own and control much of the streamed content market in the US and select regions around the world. It will not only generate high margin revenue from DTC services, it will in time impact the economic dynamics of the traditional box office.

    In my view, Apple looks at growth from the vantage point of widening the company’s economic moat while providing opportunities to generate increasing amounts of revenue from the company’s global installed base of device owners. Apple’s TV efforts are focused on more than the original content offered through Apple TV+. Ideally, Apple TV will function as “TV Central” for viewers. The company is also offering access through Apple TV and one’s Apple ID the content of other streaming services on a subscription basis.

    I’m surprised at the myopic view of critics and analysts who are focusing only on what’s available through Apple TV+ today. Although it’s a limited amount of original content at this time, the production quality of what’s offered is high and the tent-pole shows are building an audience. What Apple TV+ is today is just a preview of what Apple TV+ will be a few years from today. Increasingly, consumers will view content across multiple devices and in many different places. It’s not the “living room experience” that matters anymore. It’s the total user experience that matters and Apple is uniquely positioned to offer both the highest devices and high-quality content to be viewed anywhere in the world at any time of day.

    3
    November 10, 2019
  2. Ralph McDarmont said:

    PED, about your “my take.” $6 billion annually for content seems extraordinarily exaggerated. Annual revenue could be less, unless I dropped a decimal point somewhere. As for analysts projecting content cost of $6 billion “total,” what is that? Total what? For the launch, for the first year, for eternity? Content is pricey. Just ask Iger and read his book, too.

    0
    November 10, 2019
  3. Gregg Thurman said:

    The one thing about digital streaming that I think WS misses entirely is the flexibility of WHEN a program is watched.

    Back in the days of black and white TV, before VCRs, before DVRs, programs were assigned time slots. Eyeballs had to be “stolen” by one network from another. The number of viewers remained constant, but where they got their content was not. One season ABC ruled, but the following season (with a new lineup), it was CBS, or NBC.

    With time slot agnostic streaming, the viewer can catch all the programs they desire WHEN they desire to view them. no longer will producers schedule programs to lead from one into another (a common practice before the remote).

    Viewers will subscribe to multiple streaming services because they can watch the best of each at their convenience, not according to an arbitrary, static schedule.

    I see this as a net positive for TV. No longer will studios create one more cable channel, forcing the carriers to bundle (at additional cost to the viewer) crap with the good.

    Production efforts are going to shift to quality vs quantity. The winners won’t be the largest library of dreck, they will be the largest library of quality no matter the genre.

    Before streaming $1 billion or $2 billion might have paid for an entire season of 24/7 dreck, to be immediately shunted off to the so-called independent stations as reruns into eternity (that you pay for as part of a cable bundle with no control over what or when you watch). For this reason I don’t see Apple TV+’s seeming handicap of a small library as a problem. People will subscribe to get the program they want to watch, without a lock-in contract.

    I’m currently an exclusive viewer of The Morning Show, but I’m tempted to try something different (for no extra charge) that may look interesting without fear that something else may prove to be a stinker.

    I will be signing up for Disney+. Between my cable only service from Comcast, my Prime subscription (because of Amazon’s free freight policy), Apple TV+ and Disney+ (for ESPN) I’m getting all that an non-addict person can watch for under $100/month, a savings of about $80/month.

    1
    November 10, 2019
  4. Fred Stein said:

    “steal”? Does Netflix own me? I will likely cancel my Netflix, but for another reason. Their content, and the way the present options, has deteriorated. I’m not alone, In July, Netflix lost 126,000 subscribers in the US during the second quarter, the company said in its Q2 earnings report.

    Regardless of Netflix’s business, Apple and Disney will do well, each for different reasons as Greg Thurman and Robert Paul explain. Thanks for that.

    As for Apple spending $6B, it’s peanuts in this business compared to acquiring content libraries or another streaming company. Apple plays a long game, as always. They will build value organically, and with partners. Watching this series, “How Apple created a dynasty in video streaming” has many seasons and episodes to come.

    0
    November 10, 2019
  5. Kirk DeBernardi said:

    I’ve long thought and preached that whoever gives the consumer…

    WHAT they want…
    WHERE they want…
    WHEN they want…

    …will have the key to the new viewing paradigm that will fit most ALL generations, tastes and budgets.

    Stream-on billion pockets y’all!

    0
    November 11, 2019

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