Disney has decided to take its vast library of content – from children’s programming to classics to sports – over the top and offer it directly to consumers rather than relying on intermediaries, such as Netflix.
That decision may prove to give Disney greater profits in the long-run but will require investment and patience before that takes place. Disney may own the content that will be available on its streaming services, but not licensing that content to Netflix and others represents an enormous opportunity cost. Netflix alone pays Disney about $500 million per year in licensing revenue according to UBS. The total tally for its film and licensing revenue is $2.5 billion per year.
If Disney were to charge $10 per month for its streaming service (or $120 per year), it would need 21 million subscribers to break even. That’s not so far fetched. Netflix currently has 104 million subscribers around the world and 48.6 million subscribers in the United States. Disney also has some incredibly valuable content when you can bring together Pixar, Marvel, and Star Wars.
But, Netflix did not get those subscribers overnight, so investors in the company ought to prepare for a few years of financial famine before cashing in on going over the top.