How Apple and Disney Are Shaking Up Streaming

And why you might soon rethink your streaming channels

Nov 12, 2019
Marketing

SMITH BRAIN TRUST  Disney+ and Apple TV+ are here, and the hotly anticipated – and attractively priced – streaming services are stirring some questions in the increasingly crowded on-demand entertainment industry.

How many streaming services do we really need? And how many will the average U.S. consumer realistically subscribe to? In other words, how will we know when we’ve reached peak streaming?

“Although the general perception is that the online streaming world is already getting very crowded amongst big players and online streaming service providers, it’s not necessarily the case,” says Bo “Bobby” Zhou, a marketing professor at the University of Maryland’s Robert H. Smith School of Business. “It’s not like a lot of consumers are not willing to subscribe to multiple online streaming services simultaneously.”

Zhou, whose forthcoming research examines streaming services and why consumers subscribe to more than one platform, says consumers are willing to cut back on other discretionary expenses in order to satisfy their entertainment needs. For example, he says, people caught up in all the drama on “Succession” might curb their dining-out or shopping habits to pay for HBO Now.

Lower price points

Disney+ and Apple TV+ are expected to deliver an immediate impact on the industry, analysts say. That’s in part because of the hype surrounding the content for each. And it’s also because of their price points. Disney+ is entering the streaming market at just $7 a month, and Apple TV+ is priced at just $5 a month.

“With Disney+ and Apple TV+ coming into the world of streaming services with an incredibly aggressive pricing scheme right now, my conjecture is that it is going to rack up a lot of subscribers in the short run. I suspect that the current players such as Netflix will be significantly affected,” Zhou says.

But don’t expect Netflix to rush to lower its prices, which start at $9 for a basic package and climb to about $16.

He says Netflix is likely to be able to resist some price pressures, in part because it has already built a loyal and dedicated consumer base through its original content. He also notes that there’s a contrast between the revenue streams of Netflix and its new Disney rival.

“Netflix is a publicly owned company that has to answer to its stakeholders and its only current revenue stream is from subscription services,” Zhou says. “In contrast, Disney is a multidimensional commerce giant that can afford to lower its prices in order to lure you to take your friends and loved ones to Disney World. There, they can sell you more merchandise and make more money down the road. This is a classic marketing example of cross-subsidization.”

In addition to its pricing strategy, Disney has a distinct advantage in terms of its vast collection of available content to go along with any original shows accompanying the launch. Zhou says Disney and Apple’s competitors must double down on original content if they want to keep up with their new competition.

“We have to face the reality that content is king. If you are going to continue to rely on Disney and other third party production studios to keep supplying the premier content to you, then you are in a strategically disadvantaged position,” Zhou says.

Playing to strengths

Though the field may be getting crowded, Zhou says there may be room enough for all the streaming services, as long as they differentiate themselves in terms of content.

For example, if Disney focuses on family-friendly content, he says, then that opens the door for Netflix to produce or acquire content for other audiences.

Movies and TV shows often appeal to niche audiences. For the streaming giants, acquisition of smaller production studios and compelling stories could be the key to staying ahead of the competition.

“As long as there are significant merits, be it humor, interesting action or twisted plots, I don’t think that the independent or smaller players would cease to exist any time soon,” Zhou says.

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About the Expert(s)

Professor Zhou received his Ph.D. in Marketing from the Fuqua School of Business at Duke University in 2014. His research focuses on competitive marketing strategies, pricing and promotion. He uses both analytical models as well as experimental approaches in his research. His work has been published in the Journal of Marketing Research. He has presented papers at the INFORMS Marketing Science conference, INFORMS POMS conference, and UT Dallas FORMS conference. He teaches marketing research in the undergraduate programs.

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