Disney's Netflix competitor could hit 50 million subscribers in 5 years, but Wall Street sees 2 major risks to its strategy

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Disney's Netflix competitor could hit 50 million subscribers in 5 years, but Wall Street sees 2 major risks to its strategy

disney mandalorian

Disney/Lucasfilm

"The Mandalorian" will be Disney+'s first live-action "Star Wars" TV series.

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  • UBS analysts estimate Disney's upcoming Netflix competitor, Disney+, will hit 5 million subscribers in its first year after launch, and 50 million subscribers in its first five years.
  • Disney's streaming aspirations could weigh on earnings in the short term, but the analysts think investors should consider the long-term positive growth.
  • Still, UBS foresees at least two potential risks to Disney's direct-to-consumer strategy.

Disney is expected to give reigning streaming champion Netflix some formidable competition when it launches its own streaming platform later this year, called Disney+. But Wall Street analysts at UBS also foresee at least two potential risks to Disney's new direct-to-consumer strategy.

UBS projects Disney+ will reach 5 million subscribers in the first year after its launch, and 50 million subscribers in its first five years, analysts said in a report released on Tuesday. That would make Disney+ the fastest-growing streaming platform yet. For reference, Netflix currently has 137 million subscribers globally.

"We believe Disney is the only traditional media company with the scale, brand recognition and IP to join Netflix and Amazon as a leader in the retail market place for subscription video," the analysts said in the report. "We expect Disney+ to drive the fastest uptake of any DTC platform to date."

disney ubs

UBS

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READ MORE: Disney revealed new details about its Netflix competitor, Disney+, including 'Star Wars' and Marvel TV shows

UBS expects Disney's streaming aspirations to weigh on earnings in the immediate future, but said investors should consider the positive long-term effects.

"[We] expect the benefit to terminal value to offset near term dilution and support the company's valuation," the analysts said. "We expect Disney+ to contribute positive earnings by 2024 and see long term upside as Disney increases scale and benefits from secular shifts to streaming, 1st party viewership data, and vertically integrating distribution. We believe Disney is uniquely positioned with a collection of the strongest content/brands and a track
record of maximizing the value of its IP."

But the analysts still see at least two major risks to Disney's strategy. Mainly, Disney might find it difficult to replicate the success that it's used to.

One trap Disney could fall into is the urge to "protect existing earnings streams which currently support Disney shares," analysts said. "This could cause Disney to generate less growth than we show in direct-to-consumer businesses."

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There is also the "possibility that the economic benefits of the retail model do not materialize in the timeframe or to the extent expected once the land grab phase begins to wane," the analysts said. "Disney currently benefits from an optimized wholesale distribution model the economics of which will be difficult to replicate in a fragmented retail world."

UBS anticipates Disney will spend $500 million on advertising in 2020 and $800 million on advertising by 2025 for the service, and estimates it will spend $1 billion in 2020 on original content, which could grow to $1.6 billion per year by 2025. UBS also expects Disney to "cannibalize existing licensing revenues," which could have an impact of $1.1 billion in 2020.

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