When Netflix (NFLX)- Get a Free Report started his move from DVD mailing lists to offer video streaming, it has something that no competitors have to offer. You can watch some movies and television shows if needed. That’s something that was previously only possible if you bought a movie or television series on DVD (or VHS).
The service at the time was revolutionary. Previously, television shows were shown in reruns, but on a limited schedule. If you want to watch “Friends” or “Cheers,” you’re at the mercy of whichever channel has the syndication rights to the show and, for the biggest hits, you can also get a set of the show scheduled on cable channels like TBS.
At some point, streaming companies realize that when other companies enter streaming, prices and competition for archived content will rise (or studios want to keep showing it for their own services). That’s when Netflix pivoted to create its own original content, a move that led to the company having some big hits that it actually owns.
Now, Netflix is strugglingAt least relative to the success of the past and instead of focusing on content and driving subscriptions, the company has made another move that, for some reason, rival Walt Disney has decided to follow.
Disney and Netflix Confuse Value and Price
Disney has a huge content archive of its own. That’s a major advantage for Netflix, which relies on licensed shows and creates originals out of thin air, while Disney can base its shows on Marvel and Star Wars characters.
And while both companies are in the business of selling subscriptions, they don’t seem to realize that the value is relative. It makes it a very curious decision that Disney and Netflix have decided to offer lower ad-supported versions of their streaming services.
Disney CEO Bob Chapek talked about the service during his company fourth quarter earnings call.
“We are exactly one month from the US launch of the ad-supported subscription offering Disney +, which is a win for viewers, advertisers and shareholders. Disney Bundle, gives viewers flexibility in choosing the options that suit their needs,” he said.
In theory, a cheaper price means more people can subscribe, but that’s the opposite of how premium products generally work. Disney does not value its theme park so that most people can go, that’s the price they make the most money.
Netflix and Disney+ are premium services — the iPhones or Teslas of the streaming space — so offering them cheaper actually diminishes their value.
Netflix Has Content Problems (Disney Doesn’t)
Netflix has stumbled when it comes to making hit shows, so you can probably argue that it’s not quite as premium a service as it used to be. If the goal is to be more mass market and less of HBO in its heyday offering premium content at premium prices, then perhaps a cheaper ad-supported tier makes sense.
Disney, however, does not have a content problem. It can mine its intellectual property (IP) for a seemingly endless series of new shows that fans will love. Marvel fans watch out. The same can be said about “Andor” compared to “Obi-Wan Kenobi”.
With this show, Disney gives customers a theatrical experience at least once a week, and an amazing archive. It’s hard to argue that Disney and Marvel shows aren’t big-screen quality and companies should position their offerings as the ultimate premium product.
Netflix may not be worth the current subscription price due to the lack of ongoing hit shows. Disney+, however, will be a good value at twice the current price at least for fans of its biggest franchise (which has the deepest fan base of any IP in the world).
Chapek appears to understand the value of the Disney+ platform, but he clearly doesn’t see the true value for consumers.
“As we celebrate the three-year anniversary of Disney + this week, I can’t imagine how our commitment and huge investment in our DTC business has helped create the most powerful suite of streaming services in the world with the ability to reach hundreds of millions of viewers around the world must see content, a service that is not just a content delivery system but a platform that brings us closer to our audience than ever before and allows consumers to access more of The Walt Disney Company’s total offering,” he said.
If Disney (or Netflix) has a must-see show — something we know Disney can consistently deliver — then price doesn’t matter. Apple doesn’t discount its iPhones, and Tesla won’t put its brand on low-cost cars. Under Armor almost destroyed its brand by discounting its core products which reduced the company’s premium brand proposition. That’s something Lululemon has never done because people will pay for quality as long as it also has a better perception.
Disney has a premium brand with shows that people want to see. Premium products cost more, not less, and Disney lowering the price runs the risk of diminishing perceived value.