Although Netflix (NFLX) shares slipped following Disney’s (DIS) announcement that the company was ending its distribution agreement with the former, Piper Jaffray analyst Michael Olson told investors that he believes the loss will have a minimal impact on the streaming service subscribers.
SURVEY SAYS: In a research note to investors this morning, Piper Jaffray’s Olson says Disney ending its agreement for distribution of certain content is a negative headline, but it will have “minimal impact” on Netflix. This follows his firm survey of over 500 U.S. Netflix subscribers, asking what percent of their Netflix time is spent on Disney. The analyst pointed out that Piper found that “only” around 20% of subscribers spend greater than 10% of their Netflix time viewing Disney content. Further, he expects “almost none” of the remaining 80% of subscribers to cancel due to the loss of Disney. The 20% of heavier Disney viewers are unlikely to cancel unless Disney accounts for a larger portion, greater than 40%, of their Netflix viewing time, Olson contended. While Olson recognized the strength of Disney’s content, particularly for younger children, the analyst noted that he believes Netflix can license similar genre content from other sources and/or use the cost savings for original programming. Netflix is likely already in the process of determining how to effectively reallocate funds previously earmarked for Disney, he said, adding that the company has nearly 18 months to plan for this change. The analyst reiterated an Overweight rating and $215 price target on Netflix’s shares.
ENDING AGREEMENT: Last week when Disney reported third quarter earnings, the company announced that it will launch its ESPN-branded multi-sport video streaming service in early 2018, followed by a new Disney-branded direct-to-consumer streaming service in 2019. Additionally, Disney said it will end its distribution agreement with Netflix for subscription streaming of new releases, beginning with the 2019 calendar year film slate.
