Netflix (NFLX -0.37%) has long been the leading player in the subscription video-on-demand (SVOD) space, reaching more than 230 million global customers. However, as more and more consumers have moved away from cable TV to streaming, many legacy media companies have established their own SVOD operations, which has made the industry more competitive. One of the biggest entries into the arena in recent years has been Walt Disney (DIS 0.62%), which has 161 million subscribers for its flagship Disney+ service. But considering some analysts have predicted Walt Disney will have more customers than Netflix by 2025, investors may wonder which stock is a better bet. Let's take a closer look.
Netflix wants to be more than SVOD
Netflix is synonymous with streaming, even though it started life as a DVD rental-by-mail company. And though the company still offers the legacy service, it accounted for just $100 million revenue in fiscal 2022 -- a tiny fraction of the $31.6 billion generated overall.
Despite Netflix’s accomplishments in the SVOD space, the company is acutely aware of how fickle the business can be; in 2022, the company experienced its first drop in subscriber numbers for more than a decade. Upon the news, the company’s stock fell 35%.
Netflix has seemingly been aware of its reliance on SVOD and the vulnerabilities that it presents. In summer of 2020, the streamer announced a plan to get into the video game market, releasing its first batch of iOS and Android titles in late 2021. And while initial reports indicate Netflix’s customers are fairly tepid on its games, the company remains bullish; Netflix VP of games Mike Verdu recently confirmed the company is working on a cloud-gaming platform that it hopes will let players enjoy its titles across a slew of devices.
Walt Disney is more than SVOD
2023 marks Walt Disney’s one hundredth year in operation, and, from a business standpoint, the company has ostensibly never been stronger.
Walt Disney controls an enormous back catalog of characters, covering everything from classic animated characters such as Mickey Mouse and Donald Duck to cinematic universes such as Marvel and Star Wars. And by leveraging its intellectual property (IP), Walt Disney has been able to build the most dominant amusement park business in the world.
Walt Disney’s IP is also key to the success of Disney+. The service is the de facto streaming home for Marvel and Star Wars content, and also serves as a library for its vintage cartoons and movies. But while Walt Disney’s Parks, Experiences and Products unit generated more than $28 billion revenue in fiscal 2022, its Direct-to-Consumer division brought in a little over $19.5 billion -- weighed down by its money-losing SVOD operation.
The best long-term bet?
For investors considering a stake in Netflix or Walt Disney, it seems evident SVOD is perhaps not as strong an industry as it once was. Indeed, with estimates of roughly 90 percent of U.S. households subscribing to at least one streaming service, it’s arguable that that the sector is already close to saturation. But as outlined above, for Netflix and Walt Disney, SVOD is not necessarily everything.
Of course, that’s not to say that streaming is inconsequential -- quite the contrary; much of Netflix’s existing game catalog is based on its original shows, and for Walt Disney, Disney+ engages various generations of fans, ostensibly encouraging them to visit its many parks so they can get closer to the worlds and characters they enjoy.
For Netflix, the long-term challenge will be whether it can build a strong enough games business to bolster its SVOD operation against churn. Walt Disney on the other hand is working to reign in its streaming costs while also indicating it could raise SVOD prices. Such moves are likely to spark questions for market-watchers, making any long-term bet a challenging decision.
Investors should pay attention to Netflix’s next quarterly earnings -- expected around April 18, 2023 -- to see what it says about its video games strategy. Likewise, Walt Disney is projected to announce its next results on May 10, 2023, when stakeholders can expect to learn more about how the company’s cost-cutting is going. The additional insight should help investors better understand the possible shape of these SVOD giants over the longer-term.
