Consumers Are the Clear Winners in the War Between Disney and Netflix

Disney’s CEO Bob Iger made headlines recently when he stated that it was a mere “coincidence” that the Disney+, ESPN+, and Hulu bundle would cost $12.99⁠—the exact price point of a Netflix subscription. 

Coincidence or Calculation?

The entertainment behemoth boasts not only Disney classics and box-office winners Marvel and Star Wars but also 21st Century Fox’s The Simpsons, Pixar favorites, exclusive originals, and even National Geographic⁠—all of which will be available on the new streaming site for the low price of $6.99/month.

Combine that with ESPN+ and Hulu, and consumers will have a lot of streaming capability for just $12.99/month. 

Whether coincidence or otherwise, competition in the streaming industry demonstrates age-old facts of first and second-mover advantages.

Many may consider it doubtful that such a seemingly competitive pricing move could be pure coincidence, particularly while the clear incentive for Disney is to gain market share in the streaming space⁠—and quickly. 

Furthermore, new data suggest that American streaming consumers would like to pay $21 monthly for all their streaming services combined⁠—a number too low to suggest that consumers would take advantage of both the Disney+ bundle and Netflix.  

Whether coincidence or otherwise, competition in the streaming industry demonstrates age-old facts of first and second-mover advantages. 

First-Mover

Consumers easily recognize the first noticeable mover in an industry; a firm that establishes a new market has the power to gain intense brand loyalty. Indeed, Netflix has benefited in many ways from being the proverbial first-mover⁠—reaching verb status (like Google, Photoshop, and other well-known brands) and becoming the streaming service of choice for millions of Americans. Reports last year showed that Netflix streaming accounted for a staggering 15 percent of internet bandwidth use globally. 

Additionally, Netflix has spent billions to produce original content, differentiate its products, and keep consumers loyal. Shows like Stranger Things, 13 Reasons Why, and Orange Is the New Black have helped Netflix become a household name. Netflix, long considered the industry leader, is vulnerable in its position as the incumbent firm.

Economists Marvin B. Lieberman and David Bruce Montgomery wrote an award-winning journal article discussing the key benefits of establishing a market: “(i) technological leadership, (ii) the preemption of assets, and (iii) advantages associated with buyer switching costs…” Furthermore, brand loyalty is often easiest to grant to a first-mover.

But Netflix, long considered the industry leader, is vulnerable in its position as the incumbent firm. The company is subject to entrant firms “piggybacking” existing technological advancement and surpassing the incumbent, price competition that eats away at profit margins, and a market for streaming that could⁠—and likely will⁠—eventually change.

Such competition from Disney+ and other entrant firms has the potential to chip away at Netflix’s market share.

Second-Mover

As a later “mover” in the streaming industry, Disney+, or any other entrant firm, must incentivize consumers to adjust their spending habits⁠.

This is a difficult and potentially costly undertaking, not only for Disney but for consumers, as well. If the “switching cost” for consumers⁠—the mental tradeoff of Netflix for Disney⁠—is too high, consumers will reveal their allegiance to the industry leader.

But as second-mover, Disney also has advantages working for it. Economist Joseph Schumpeter’s famous notion of “creative destruction” alludes to the fact that existing firms may be overturned when newer or more efficient firms enter the market. Creative destruction refers to the process of rendering some innovations useless because of revolutions within the marketplace.

Schumpeter called creative destruction “the essential fact about capitalism.” He continued: “It is what capitalism consists in and what every capitalist concern has got to live in.” Disney is already a stellar example of a resourceful fast-follower in the streaming industry.

As an incumbent firm, Netflix is just as susceptible, if not more so, to being creatively destroyed by better firms. 

Though not without disadvantages, Disney will benefit from being a “second-mover” in the space by entering the market at a time when Netflix is already bleeding subscribers. This drop in subscriptions, the first time since 2011, is attributed to “slower than expected growth on lackluster content and a subscription [price] increase.”

Furthermore, Disney’s new streaming service will not only provide increased competition for Netflix but will also catalyze the removal of Disney shows from Netflix, making Disney+ the exclusive source for its movies.

Disney is already a stellar example of a resourceful fast-follower in the streaming industry. Its low-cost bundle combined with fan-favorite content can help Disney meet high expectations from consumers and financial analysts alike.

Streaming Wars 

Disney is competing on several fronts to capture relevance in the streaming world. Pricing equal to Netflix could force some consumers to choose: would they prefer Netflix and its steady stream of originals or tried-and-true Disney classics? 

As we watch the streaming wars, one thing is for certain: consumers win.

Regarding the increased industry competition, Netflix wrote: “The clear beneficiaries will be content creators and consumers who will reap the rewards of many companies vying to provide a great video experience for audiences.”

They’ve never been more correct. Creative destruction is a tale as old as markets⁠—as we watch the streaming wars, one thing is for certain: consumers win.