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Disney+ streaming loyalty is 'pretty durable' and not seasonal: Analyst

Rosenblatt Securities Senior Research Analyst Barton Crockett joins Yahoo Finance Live to discuss Disney, the streaming space, and why Disney+ users are so loyal.

Video Transcript


SEANA SMITH: Hulu is driving more subscribers to Disney than Disney Plus. This is according to a new report from "The Wall Street Journal." Here to break this down, the latest moves that we're seeing at Disney, and more in the streaming wars with Netflix earnings out tomorrow after the bell, we have Barton Crockett. He's a Senior Research Analyst at Rosenblatt Securities.

Barton, it's great to see you. So the big headline here from "The Wall Street Journal," Hulu subscriptions actually outpacing that of Disney Plus. Is this worrisome for Disney and how should the company be looking at numbers like this?

BARTON CROCKETT: Well, it's not overly worrisome for they own Hulu, they own Disney Plus. You know, I think what the article was focusing in on was domestic subscribers, and I think the bulk of Disney Plus growth going forward, like it is for Netflix now, is going to be international. But certainly this kind of highlights what is the model that they're pivoting towards globally.

And what that is combining the family friendly Disney Plus with content that reaches a broader spectrum of things that adults that don't necessarily want to watch Disney things could be interested in. You get that with Disney Plus and Hulu sold as a bundle in this country. Outside of this country, the go to brand is not Hulu, but Hotstar, which is really filling that role in Latin America, in Europe, and in India for Disney.

DAVE BRIGGS: Hulu's limitations being, it's just a US company and not global. Do you think Disney acquires them outright and owns them fully moving forward? And if I can, also your reaction to Disney scoring nine billion in advertising commitments at upfronts, that's a record, on the heels of what?

BARTON CROCKETT: OK. So two separate things. Do I think they will kind of buy out Comcast's stake in Hulu? Probably. I think it's a cleaner structure. They've got the capital to do it. And I think the price that they'd have to pay has come down, I'm sure, as the streaming stocks have come down. That has to help make that deal a little bit easier to digest.

As for the upfront. It's interesting because there's all this concern about a recession. The TV network companies have gone through the upfront cycle, and the upfront cycle has been in some ways encouraging. The rates that they're able to charge for television ads have gone up nicely. And the offset is that ratings are down as people watch more streaming.

RACHELLE AKUFFO: And I want to ask you about brand loyalty. What you're seeing with Disney consumers versus what you see with Hulu streamers?

BARTON CROCKETT: Right. No, I think that we don't get a lot of clarity about that from the company, but we do think that the Disney Plus subscribers are very loyal. They've got fan base of people who are signing up because they love the content. Hulu I think is a more ordinary loyalty profile.

People will come in and out based on a show that they like. But if you're a Star Wars fan, a Marvel fan, a Pixar fan, a Disney Animation fan, you know you're probably not changing your love for that stuff back and forth season to season. It's probably pretty durable.

SEANA SMITH: And Barton, we've seen a couple of these streamers raise their prices. ESPN Plus, the most recent here, going from $6.99 to $9.99. The conversation over the last couple of days on the heels of this has been, maybe this is a way or a play by the company to get more people to sign up for that all-in bundle. So instead of just getting ESPN Plus, you'll sign up for the bundle that gets you Hulu, Disney Plus, and ESPN Plus. Do you think there's any truth to that? And I guess what advantage does this give Disney over its competitors?

BARTON CROCKETT: Well, and I think that this is something that Disney can offer that its competitors really aren't offering is a bundle, multiple services, multiple price points, multiple ways to hook you in. And I think one of the lessons of the history of television is bundling is valuable and it works. And cable, they started offering you TV, then they offered you broadband, and they offered you telephone service, now they're offering you mobile phone service.

These extra hooks are a great way to kind of lock people in. People like to reduce the number of bills. They like to reduce complexity. They like to work with someone they're comfortable with. Disney has the scale to do that that some of the people it's competing with really can't do and streaming the way that Disney is doing it.

DAVE BRIGGS: Going to apologize again for a two-parter related to Netflix. But shares are down 68% year-to-date? What's your expectations for earnings? And moving forward to the next quarter, how significant a bet are they making on this "Gray Man" franchise. $200 million they've spent on this thing with Chris Evans and Ryan Gosling?

BARTON CROCKETT: Yeah, look, I mean, this is Netflix's business is making big bets on shows, movies that will break through the noise, generate attention. So this is a big bet on some new IP with some big talent behind it, and it's what Netflix is banking its future on is its ability to continue to do that again, and again, and again using data, using its expertise, and believing that it can do this better than the media guys who are doubling down their efforts to match what Netflix is doing.

So we have this big battle of big hits. And the consumer is reacting perhaps by getting a little bit more kind of fickle, bouncing from one service to the next to catch the next big hit. So it also highlights one of the difficulties of streaming. And that's going to be certainly visible in their earnings report tomorrow where they've guided that they're going to lose subs, lose two million subs. And they will probably, I think, look OK relative to their guidance, which is pretty conservative.

They had a big hit in the quarter with "Stranger Things." But what they need to do is turn around losses into growth going through the back part of this year and forward, and that's going to be difficult. The data we're looking at would suggest that there's not really a big change right now in consumer interest, loyalty to Netflix over the past couple of quarters. But that needs to turn around, I think, if they're kind of reignite subscriber growth.

RACHELLE AKUFFO: And Barton, to that point, how much of an impact do you think having these ad supported brackets added into some of these streamers, how much of a game changer is that going to be for them?

BARTON CROCKETT: Well, it certainly, it's important. I mean, the data that we see from this industry would suggest that there's better growth in the cheaper ad supported tiers. And Netflix was late in recognizing that. I think they were a little bit kind of myopic in their view of what the consumer wanted.

They get it now. So they're working quickly to get there. They've teamed up with Microsoft and we'll see how they execute. And I'm not sure that Microsoft checks all the boxes in terms of expertise and brand advertising. They certainly know tech-based internet advertising, but brand advertising will be a newer kind of thing for them.

They're not the largest player in ad sales, but they've got history, and I think they've got Netflix's trust in terms of the privacy commitments, the willingness to work with them. So it's going to be important that they sell enough ads to offset the loss of subscriber revenues because I think a fair number of people will opt for those lower priced tiers.

SEANA SMITH: Hey, Barton, before we let you go, we want to get your thoughts on the headline from SNAP today. I know you cover the stock. They're actually having-- they're going to have a desktop presence for the first time. This is a company that we've been talking about a lot, just in terms of what will be the next big thing that could potentially be a catalyst for the stock. How big of a deal is this?

BARTON CROCKETT: I don't think it's desktop. I mean, I think that this is an app that resonates with young people who are probably under indexing on desktop. I think that that is really not going to be important to the story. What's going to matter for SNAP is their ability to maintain this appeal to a younger audience that loves the augmented reality, loves the lenses, the filters, loves to communicate in this video focused default first kind of format.

And everything we've seen suggests that people are engaged with SNAP, and young people in particular. And the next thing for them is to work through whatever kind of ad headwinds, they call those out in late May, and we'll see what they're really seeing when they report their earnings post close this Thursday. It'll be a pretty crucial test of really how tough the kind of macro is right now.

RACHELLE AKUFFO: We do appreciate getting your insights on all the streaming wars. Barton Crockett, there, Rosenblatt Securities Senior Research Analyst. Thank you so much.