The Loyalty Question For Streaming Services

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Recently, I saw the highly anticipated Star Wars The Clone Wars episode "Old Friends Not Forgotten" where Star Wars fans get to finally see the Siege of Mandalore. For those that aren't Star Wars fans, you'd probably not understand how important this episode was to Star Wars fan. I will admit, this episode was like one of the best Star Wars I've seen. It was so great that I rewatched it a couple of times.

Now, this blog post is not about the best Star Wars The Clone Wars episode that I saw. Instead, this blog post is about a few realizations I had while watching that episode, realizations that showed me the biggest difference between Disney+ and Netflix.

The First Realization

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Disney+ and Netflix are two streaming services that I subscribe to. While Netflix has a larger content library and Disney has a smaller content library, the way that both of them handle the distribution of their content is what determines how much they're willing to spend for content creating. 

While Disney has been profitable for ages and has even shown to continue generating profits while jumping onto the streaming trend with its streaming service Disney+, Netflix is the pioneer in streaming and continues to dominate the streaming industry while burning cash. While Netflix has shown profits to investors, its free cash flow continues to be negative. The main reason for it is because Netflix finances the production of its content and most of the funding comes from the bond market. With a low credit rating, Netflix has to spend a lot on interest expense. 

Between Disney+ and Netflix, since Disney+ releases their content slowly (like one episode a week per show), Disney doesn't have to spend a lot on producing a lot of content all the time as subscribers will be hooked on the show and continue to hold onto their subscription as they wait for the next episode. Meanwhile, because Netflix releases a full season for each show at once, Netflix's subscribers will get bored after a few of binge-watching that whole season and become bored with Netflix's platform. By continuing to heavily invest in content creation, Netflix can continue to keep its subscribers engaged with the platform and make the platform less stale to their oldest subscribers. 

The Second Realization

Photo by Kon Karampelas on Unsplash

Comparing the fanbase of Netflix and Disney, Disney has a bigger and more loyal fanbase. With a brand that has been admired for generations, Disney has been able to achieve massive success when it created Disney+. Also, with the many different ways fans can interact with their favorite Disney brands, Disney has been able to generate revenues from their fans in many different forms. Disney has mastered the monetization of its fanbase. 

Meanwhile, Netflix fans don't have as many ways of interacting with their favorite Netflix brands. While merchandising is a small thing for Netflix, the content on Netflix's platform is really the only way most Netflix fans get to interact with their favorite brands. Because of that, Netflix can't build a loyal fanbase that Disney has. Some may say that the fact that Netflix continues to create conversation topics with their new hits, with the need to continue producing content in order to stir publicity, Netflix's fanbase may be unsustainable. 

What was trending today might not be well-known down the road but what's interesting to see is that Disney, Marvel, Pixar, and Lucasfilm all had great success in building a huge, loyal fanbase since the beginning while Netflix hasn't been able to do that with its original. I don't see big conventions created in honor of House of Cards, 13 Reasons Why, Stranger Things, etc. but I do see big conventions for Star Wars, Marvel, and other Disney brands. 

Moreover, there's also the argument that Netflix needs time to build a strong fanbase with its brands since Netflix is still relatively new in the entertainment industry. That argument is completely valid. Until Netflix can start building that loyal fanbase, the Star Wars fanbase continues to get stronger and other brands that aren't related to Netflix continue to grow stronger as well. 

Overall

From my analysis comparing the models of Netflix and Disney+ as well as the strength of their brands, if I were chosen to invest one streaming service, between Disney+ and Netflix, I'd choose Disney+ even though they have a smaller content library and less subscribers. With a more loyal fanbase as well as a content delivery model that keeps fans excited and costs lower, Disney+ continues to operate more efficiently than Netflix. If Netflix were to find ways to monetize its fanbase whether it's through creating a variety of products relating to a brand, like making videogames and amusement parks based on its brands, through licensing revenue, Netflix will start growing a loyal fanbase similar to Disney. 

In the meantime, Netflix continues to burn cash. If they can find a way to reduce the cash burn while simultaneously providing more content to its subscribers, then Netflix will continue to dominate the streaming industry for decades and even centuries.