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Losing Disney Movies May Not Hurt Netflix: Analyst

Netflix shares are down more than 3% Wednesday morning in the wake of news that The Walt Disney Company will stop distributing new release movies to Netflix in 2019 as it prepares to launch new direct-to-consumer OTT offerings, but concerns about the effect that decision will have on Netflix’s ability to gain and retain subscribers is overblown, an industry analyst says.

“There is no dispute, Disney and Pixar movies are fantastic collections of entertainment content. The Netflix service, or any service, is better off having them (at the right price),” Todd Juenger, analyst with Bernstein Research, said in a research note issued Wednesday. “However, there is evidence from Starz that losing Disney movie output doesn't necessarily have any visible impact on subscriber growth, as long as the entirety of the service is a good value proposition to consumers.”

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Juenger recalls that Starz lost rights to Disney movie output beginning in 2016 as Netflix acquired them in a three-year deal that expires at the start of 2019.

“Since then, there has been no discernable impact on Starz subscriber acquisition, churn, or net paid subs,” Juenger added. “If losing Disney movie output hasn't impacted Starz, then it shouldn't impact Netflix.”

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He also points out that the change in Netflix’s rights structure with Netflix only affects the OTT provider in the U.S. (Netflix doesn’t have international rights to Disney movies, save for some countries where it has independent one-off deals), and that most of Netflix’s growth is now coming way of its international expansion. In fact, Netflix’s international subscriber base has surpassed its U.S. base following a strong Q2.  

Juenger said Netflix has about two years to plan for the change, adding that there’s no current impact on Netflix’s rights to Disney’s TV content, including Marvel-branded series.

“The idea that Disney wouldn't be willing to engage with and create/license content for Netflix over time, we think, is a very low (essentially zero) probability,” the analyst wrote.