Analyst: Expect Netflix Q4 Sub Growth Miss

In recent months, Netflix critics have focused on the streaming giant’s stagnate domestic subscriber growth as evidence of cracks in the Wall Street darling’s veneer.

Longtime Netflix bear Michael Pachter, with Wedbush Securities in Los Angeles, suggests the service is going to miss meeting fourth-quarter (ended Dec. 31, 2019) domestic subscriber growth projections of around 600,000. Netflix is projecting 7 million new subscribers outside the United States.

“Domestic subs guidance and overall [earnings per share] guidance may be at risk given the heavy television advertising we observed in the latter half of Q4,” Pachter wrote in a Jan. 17 note.

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Netflix typically ramps up marketing efforts to drive lagging subscriptions when the number of existing subs not renewing (churn) increases.

The analyst contends marketing spending and a “solid slate” of high-profile new content released during the quarter should help dampen overall subscriber churn.

“We expect international subscriber growth momentum to continue,” Pachter wrote.

Indeed, the launch of Disney+ on Nov. 12 and the impending loss of most Disney and Fox content could cost Netflix another 25% of total viewing hours, according to Pachter, who ads that content from Comcast, Fox, Disney and Warner Bros. accounted for 60% to 65% of Netflix viewing hours in 2019.

“We expect most of it ultimately to migrate away,” he wrote.

That said, the flurry of new over-the-top video platforms does not imply the imminent demise of Netflix as Pachter expects the migration of third-party content to be relatively slow due to existing licensing contracts.

While it’s a guess whether Netflix (or any distribution channel) can replace content sufficient to subscribers and viewers loyal, Pachter think it is likely Netflix will pay whatever it takes to attract high quality content, and believe its competitors will be slow to gain scale.

Separate Wall Street reports say Netflix will spend upwards of $17 billion on content in 2020 — dwarfing all competitors, including Disney+.

“We expect the status quo to be largely maintained until the end of 2021,” he wrote. “For now, Netflix provides tremendous value for its subscribers.”

Netflix reports fourth-quarter fiscal results on Jan. 21.

 

Platforms Avoid Netflix Movies in Pre-Oscar Showcases

Netflix earned an impressive 24 Oscar nominations ahead of the 92nd Academy Awards on Feb. 9 — largely around two movies: Martin Scorsese’s The Irishman and Noah Baumbach’s Marriage Story.

Walmart-owned Vudu.com and exhibitors Cinemark, AMC Theatres and Regal Cinema have launched pre-Oscar events showcasing best picture nominated films — with the exception of Netflix’s titles.

That’s because Netflix — per longstanding policy — does not abide by Hollywood’s traditional theatrical release strategy affording exhibitors exclusive 90-day access. Instead, the streamer mandates all original movies be made available across all distribution channels (including theatrical) at the same time.

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This has angered exhibitors and industry insiders domestically and abroad (i.e. Cannes Film Festival) for years — the result being Netflix movies are largely ignored by major theater chains.

Indeed, Cinemark’s “Annual Oscar Movie Week Festival,” which runs from Feb. 3 to 9, enables consumers (for $35) to screen all nominated films — with the exception of Netflix’s titles. Vudu is taking preorders for Oscar-nominated titles, with the exception of The Irishman and Marriage Story (which have not been slated for a digital sellthrough release).

“I don’t see the utility of making a film available on VOD or in theaters, if it’s available for free to anyone with a subscription or trial account at Netflix,” said Wedbush Securities media analyst Michael Pachter. “Netflix would rather people sign up for a free trial and watch these films than it would care for the 50% to 65% it might earn from a movie ticket or VOD.”

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Last year, Netflix’s first Oscar nominated best picture title, Roma, was also ignored by major exhibitors. It went on to win for best director (Alfonso Cuarón) and best foreign-language film (Mexico’s first) — but no best picture. The movie reportedly generated about $200,000 in revenue from pre-nomination screenings over the extended Thanksgiving weekend at select indie theaters in Los Angeles.

The imbroglio made headlines when director Steven Spielberg suggested movies that forgo the traditional theatrical run should not be considered for Oscars. The Academy’s annual board of governors post-Oscar meeting nixed that idea.

Netflix responded (on Twitter) at the time stressing “we love cinema” and ubiquitous distribution. “These things are not mutually exclusive,” the streamer tweeted.

While Roma did become Netflix’s first film to be included in The Criterion Collection on Blu-ray Disc and DVD (due Feb. 11), it arguably left millions of dollars in box office revenue on the table.

“If Netflix wants to really be a movie company, and not just a highly successful television company, why won’t they consider the traditional movie business model?,” John Fithian, CEO of the National Association of Theater Operators, wrote in a 2018 blog post. “Wouldn’t Netflix make more money and establish a much deeper cultural conversation by offering a true and robust theatrical run first, and offering exclusive streaming to its subscribers later?”

 

Tale of the Tape: Streaming Video War Fees

With the streaming video market beginning to resemble a heavyweight prize fight involving numerous contenders, a “tale of the tape” analysis is in order to better understand costs associated with each “fighter” (service).

Apple launched Apple TV+ on Nov.1 for $4.99 — arguably the lowest-priced SVOD service on the market. The service is considered a significant threat to Netflix ($8.99) due to the Apple name and star-studded content (“The Morning Show,” starring Jennifer Aniston, Steve Carell and Reese Witherspoon).

Wedbush Securities contends Apple TV+ can generate 100 million subs in the next four years due in part to a global iPhone install base of around 900 million users.

“While this is an obvious threat to Netflix, Apple TV+ only has a handful of shows at launch,” analyst Michael Pachter wrote in a note.

The Nov. 12 launch of Disney+ ($6.99) could cost Netflix 25% of total viewing hours as much Disney/Fox content migrates from the SVOD pioneer to Disney+, according to Wedbush.

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Disney/Fox controls all of Netflix’s canceled Marvel Defenders Universe series (“Daredevil,” “Jessica Jones,” “The Punisher,” “Luke Cage” and “Iron Fist”) and Disney+’s upcoming Marvel Cinematic Universe series (“The Falcon and the Winter Soldier,” “Wanda Vision,” “Loki,” “What If…?,” and “Hawkeye”), popular series such as “The Simpsons,” and an unrivaled film library.

“We estimate that by the end of 2021, Netflix will have virtually no content from Disney, Fox, Warner Bros. or NBC Universal, and we think its efforts to replace that content with originals will only partially succeed,” Pachter wrote.

Disney earlier this year agreed to purchase Comcast’s stake in Hulu ($5.99) for about $5.8 billion by 2024. While Hulu continues to lose billions, which amount to the excess license fees paid to corporate owners over the revenue it generates, Pachter contends if Disney can grow Hulu’s subscriber base, it should be able to achieve breakeven and manage to gain market share from Netflix.

Disney is offering a subscription package with Disney+, ESPN+ and Hulu to drive greater subscriber adoption of all services.

As Netflix has developed more than 100 original series seasons outside of the U.S., it has relied on ‘second window’ content for the bulk of its viewing hours, according to Pachter.

“We estimate that fully 90% of viewing hours on Netflix are consumed by second window shows, and we estimate that Disney, Fox, Warner Bros. and NBC Universal account for 65% of total Netflix viewing hours,” he wrote.

Pachter estimates that by the end of 2021, Netflix will have virtually no content from Disney, Fox, Warner Bros. or NBC Universal.

“The company’s licensing of ‘Seinfeld,’ beginning in 2021 will help to soften the blow, and we expect [the show] to account for 5% or more of Netflix viewing hours,” wrote the analyst.

In 2015, Amazon Prime Channels began partnering with various third-party SVOD services offering domestic Prime members access to curated groups of content.

Monthly fees vary from $2.99 to $9.95 following a free trial period lasting between seven and thirty days. Showtime and Starz are priced at $8.99 each. Amazon has since added more channels, including HBO for $14.99 and Cinemax for $9.99.

AT&T TV Now: $135.00 Ultimate — 125+ live channels; $124.00 Xtra — 105+ live channels; $110.00 Choice — 85+ live channels; $93.00 Entertainment — 65+ live channels; $86.00 Optimo Más — 90+ live channels; $70.00 Max — 50+ live channels, including HBO and Cinemax; $50.00 Plus — 40+ live channels, includes HBO.

Hulu with Live TV: $50.99 No commercials plus live TV; $44.99 Limited commercials plus live TV.

YouTube TV: $50.00 YouTube TV — stream live TV from 50+ networks; $11.99 YouTube Premium — ad-free and offline video and music.

Sling TV: $25.00 Sling Orange — 34 channels of live shows, sports, and news; $25.00 Sling Blue — 47 channels of local tv, regional sports, and live shows, sports and news.

Netflix: $15.99 four-screen ultra-high-definition streaming; $12.99 two-screen high-definition streaming; $8.99 single-screen standard definition streaming.

HBO Now: $14.99 Standalone subscription to stream HBO on demand.

HBO Max: $14.99 Arriving May 2020; new home of HBO and WarnerMedia (Warner Bros., New Line, DC Entertainment, CNN, TNT, TBS, truTV, The CW, Turner Classic Movies, Cartoon Network, Adult Swim, Crunchyroll, Rooster Teeth, Looney Tunes, and more. Will have original programming, exclusive streaming rights to “Friends,” “The Fresh Prince of Bel-Air” and “Pretty Little Liars.”

Cinemax: $9.99 Max Go — standalone subscription to stream Cinemax on demand.

Amazon Prime Video: $12.99 monthly Prime membership; $9.92 annual Prime membership for $119 per year; $8.99 standalone video subscription.

Hulu: $5.99; $11.99 no-commercials subscription option for all non-live content.

Showtime: $10.99 standalone subscription to stream Showtime on demand.

Starz: $8.99 Standalone subscription to stream Starz on demand.

Apple TV+: $4.99 ad-free monthly subscription for original content; TV App includes access to subscribed cable content and most standalone SVOD subscriptions.

Disney+: $6.99 Standalone subscription to stream Disney, Pixar, Marvel, Star Wars, National Geographic, and some Fox content (“Simpsons”); Will be offered in a bundle with Hulu and ESPN+.

Peacock: Price not disclosed. Expect a standalone subscription from Comcast to stream NBC Universal content to be launched mid-2020.

The Roku Channel: Ad-supported service for accessing live content, movies, and series on demand provided by partners; accessible via Roku device or web browser.

IMDb TV: Ad-supported service for accessing movies and series on demand provided by partners; accessible via IMDB.com or any Fire TV devices.

Crackle: Ad-supported service for accessing movies and series on demand provided by Sony Pictures and content partners, accessible via most connected devices.

Tubi: Ad-supported service claims 20 million average monthly users and more than 132 million hours streamed in September alone.

 

Transactional Movie Marketing: How Big is Your Fan Base?

On Oct. 15, AMC Theatres — the world’s largest movie exhibitor — launched “AMC Theatres On Demand,” a transactional platform enabling its A-List members to purchase or rent studio (notably Paramount, Lionsgate) movies in the home on their retail release.

Key to AMC’s push into home entertainment is the exhibitor’s leverage of its 19-million Stubs A-List loyalty membership base in the same way Amazon Prime entices more than 100-million Prime members with access to movies, TV shows and third-party SVOD services via Prime Channels.

As the retail market embraces transactional VOD and electronic sell through in place of DVD and Blu-ray Disc, media companies are using pre-existing customer loyalty to jumpstart digital success.

When packaged-media kiosk operator Redbox launched Redbox Digital in 2017, its initial marketing thrust was to its 27 million Redbox Perks members.

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Indeed, Redbox claims that nearly half (48% ) of all Americans find out what’s new in home entertainment from its kiosks. The company recently enhanced the Perks program to reward members for each rental night instead of per title.

“The updated loyalty program increases the value of each Redbox experience,” Ash Eldifrawi, chief marketing and customer experience officer at Redbox, said at the time.

Last spring, Fandango launched a loyalty-rewards program — Fandango VIP+ — offering monetary credits for every four movies tickets purchased on its platform. VIP members also have 21 days to use their credit to stream movies and TV shows on FandangoNow.

“We needed to seed the system … to give customers an array of options to redeem their points,” Fandango chief marketing officer Adam Rockmore said in an interview.

While Fandango has not released data on VIP+ signups, Michael Pachter, media analyst at Wedbush Securities in Los Angeles, believes AMC has the upper hand.

“AMC may have a competitive advantage over Fandango and others delivering in-home entertainment given the reach of its rewards program, loyalty of millions [of] A-Listers and studio partnerships,” he wrote in a note. “We see little downside to AMC’s new on-demand offering, given its reach to loyal customers.”

Then again, FandangoNow is part of Movies Anywhere, the movie marketing platform (supported by Warner Bros., Sony Pictures, Universal Pictures, Disney/Fox) directing its 8 million registered users to buy and rent titles from its retail partners, which include Apple iTunes, Prime Video, Walmart’s Vudu, Comcast’s Xfinity Store, Google Play, Microsoft Movies & TV — and just recently: Verizon.

Disney Quietly Offering Pending Streaming Service for Less Than $5 Per Month

When Disney officially launches its Disney+ subscription streaming service on Nov. 12, the monthly fee will be $6.99 per month, or $70 paid annually ($5.83).

The media giant has also been quietly offering consumers (through Oct. 11) holding annual pass memberships to its theme parks a discounted three-year subscription option priced at $170, or $4.72 per month.

But a Gizmodo.com story disclosed a link that combined with the password “PARKSPASS3YEARS” will get anyone the same discounted deal.

The offer does not include Hulu or ESPN+, which Disney is combining with Disney+ for $13 per month.

The loss-leading price is largely aimed at undermining Netflix’s SVOD market stranglehold and pricing (from $8.99), it also guarantees Disney+ will lose money for the foreseeable future.

Indeed, Disney doesn’t expect to see a profit on Disney+ until 2024 — despite subscriber projections from 60 million to 90 million worldwide, according to the company’s recent investor day event.

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By comparison, Apple’s pending $4.99 Apple TV+ SVOD service is projected to generate 100 million subs over the next three years due to heavy marketing targeting an iPhone install base exceeding 900 million worldwide, according to analyst firm Wedbush Securities in Los Angeles.

Analyst Michael Pachter says the Disney+ launch and likely loss of most Disney and Fox content on Netflix could cost the SVOD pioneer 25% of its total viewing hours.

Disney/Fox intellectual property includes all of Netflix’s cancelled Marvel Defenders Universe series (“Daredevil,” “Jessica Jones,” “The Punisher,” “Luke Cage” and “Iron Fist”) and Disney+’s pending Marvel Defenders Universe series (“The Falcon and the Winter Soldier,” “Wanda Vision,” “What If…?” and “Hawkeye”), in addition to “The Simpsons” and expansive movie catalog.

“[With] Disney launching its own service at a discount to Netflix’s subscription price, while consolidating ownership of Hulu, Netflix will have to work even harder to procure original content compelling enough to support a separate subscription,” Pachter wrote in a note. “We expect Netflix to suffer the double whammy of seeing existing content migrate to competitive services at the same time that new domestic subscribers are more difficult to attract.”

Netflix reports third-quarter financial results on Oct. 16.

 

Netflix Stock Loses All Gains Made in 2019

The end of the third quarter on Sept. 30 can’t come soon enough for Netflix.

The subscription streaming video behemoth saw all positive stock gains on Wall Street disappear at the close of trading Sept. 23 — with shares down 46% from a peak valuation in July.

With nonstop press releases touting programming defections (i.e. “The Office,” “Friends,”), executive hires, possible subscriber interest and low-ball pricing from pending SVOD newcomers Apple TV+, Disney+, HBO Max, Verizon’s BET+ and NBC Universal’s Peacock, Netflix’s invincibility has taken a beating.

Typically, any concern about Netflix would be quickly erased with the next earnings report. But following the service’s Q2 disclosure of rare subscriber losses in the United States and below-expectation sub growth internationally, all bets are off.

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Co-founder/CEO Reed Hastings himself seemed to voice caution just last week telling an industry confab in the United Kingdom that “a whole new [SVOD] world [would be] starting in November.”

Fickle Wall Street is (albeit slowly) changing its tune on Netflix.

Of the 39 analysts covering Netflix, two have “sell” ratings for the stock, while nine  have a “hold” on the shares.

Kannan Venkateshwar with Barclays said Netflix’s stock has become “very expensive” based on the growing costs required for future sub growth.

Mark Kelly, analyst with Nomura Instinct, told CNBC that increased third-party SVOD competition could make content more expensive and “diminish the price power” Netflix has exerted in recent years.

CNBC parent Comcast just expanded exposure for streaming service Xfinity Plex, and is launching the Peacock SVOD platform early next year.

Michael Pachter, a longtime Netflix bear at Wedbush Securities in Los Angeles, contends the challenges Netflix faces creating original content are no different than Disney+ & Co. face.

At the same time, Pachter says Netflix’s strategy of flooding the channels with content can’t mask quality issues.

“The company may brag about its Emmy nominations or its Oscar wins, but it has approximately 10 times as many shows eligible for Emmy consideration as HBO, which won handsomely in 2019 for multiple shows,” he wrote in a note.

Pachter suggests Netflix is on the verge of losing around 65% of its domestic viewing hours when Comcast, Warner/HBO and Disney/Fox launch services their services and allow their current deals to expire.

“We estimate that Netflix pays around $5 billion a year for this content, so it will have a ton of cash available to bid on other content, and its bid for “Seinfeld” shows that it is willing to raise the stakes for licensing content,” he wrote.

Indeed, Netflix inked an exclusive deal with “Game of Thrones” showrunners David Benioff and D.B. Weiss for a reported $200 million.

While Wall Street appears confident Netflix can continue growing subs worldwide, domestic growth will be challenged with the arrival of Disney+ and Apple TV+ in November.

“We think … that a slowing of domestic growth will continue to pressure the stock over the next several quarters,” Pachter wrote.

Analyst: Netflix to Weather Content Migration — For Now

With Netflix set to release second-quarter (ended June 30) financial results on July 17, Michael Pachter, analyst with Wedbush Securities in Los Angeles and longtime Netflix bear, contends the subscription streaming video pioneer will add 5.3 million subscribers, including 300,000 in the United States.

The tally surprisingly exceeds Wall Street consensus and Netflix’s projection of 5 million new subs, including 4.7 million international subs.

Pachter argues that despite media attention to the departures of popular TV reruns “Friends” and “The Office” from Netflix in two years, the service has more than enough content in the pipeline and willingness to spend big on new programming to weather the storm.

“Friends” and “The Office” account for an estimated 5% of all viewing on Netflix, leaving other content that accounts for 95% of viewing on Netflix in place.

Indeed, Netflix launched 21 new shows in Q2, excluding 13 returning series. That compared to six news series and 17 returning series in the previous-year period.

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At the same time, content from NBC Universal, Fox, Disney and Warner Bros. currently accounts for upwards of 65% of Netflix viewing hours, according to Wedbush.

Pachter expects the migration of third-party content away from Netflix to competing platforms to be relatively slow and is unclear whether the service can successfully replace it with quantity and quality to keep its subscribers loyal.

“We think it is likely that Netflix will pay whatever it takes to attract high quality content and believe its competitors will be slow to gain scale,” Pachter wrote in a note. “Thus, we expect the status quo to be largely maintained until the end of 2021. For now, Netflix provides tremendous value for its subscribers.”

Video Game Sales Continue May Decline

Sales of video game hardware and titles dropped 11% to $641 million in May compared to sales of $720 million during the previous-year period, according to new data from The NPD Group.

The decline was spearheaded by 20% drop in consoles to $149 million from $186 million, and 13% drop in software sales to $262 million from $301 million last year.

It was the worst May for software sales in six years. Sales of accessories and game cards remained flat at $230 million.

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Analysts contend the slowdown is largely due to consumers waiting for pending new edition – i.e. Microsoft’s Project Scarlett – consoles in 2020.

“Console makers will likely ensure that physical discs exist for at least one more console cycle, which could reverse negative comp trajectory,” Wedbush Securities media analyst Michael Pachter wrote in a recent note.

Indeed, Pachter doesn’t expect the next console cycle to eliminate physical discs altogether. He says consumers still value physical games for their portability, ease of gift giving and the ability to trade them in at retailers such as GameStop and Best Buy.

“Notwithstanding dire pronouncements about the imminent demise of physical media, our covered game publishers still sell over 50% of their console games in physical form,” Pachter wrote.

Disney+ Day After: Stock Up, Netflix Down

The morning after Disney’s unveiling of branded subscription streaming video platform, Disney + launching on Nov. 12, Wall Street applauded the move, upping Disney shares nearly 10% to $128 per share in mid-morning trading.

Netflix, which is Disney’s targeted competitor despite myriad denials, is down slightly (2.79%) at $357.37 per share.

Goldman Sachs welcomed the service’s wide content selection, pricing (23% lower than Netflix), global rollout and aggressive subscriber projections.

Credit Suisse cautioned about Disney’s projected losses (approaching $1 billion) in the upstart direct-to-consumer & international business segment, which includes ESPN+ and Hulu. Disney expects Disney+ to be profitable in five years.

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SunTrust, citing an internal survey, found that just 8% of Netflix subs said they expected to switch to Disney+, with 59% sticking with Netflix. Another 24% said they would subscribe to both.

“Bottom-line, Disney+ features family content, while Netflix offers a much broader range of content with the majority of the most-searched content on the platform,” SunTrust analysts wrote in an April 12 note as reported by CNBC. “As such, we do not view Disney+ as a strong alternative to Netflix.”

Rich Greenfield, media analyst at BTIG Research in New York and former Netflix earnings webcast moderator, wondered if original Disney+ series will be available to binge view or just on a weekly basis similar to HBO and Showtime.

“No clarity on release schedule for show yet,” Greenfield tweeted. “Sounds like no binging.”

Notably, while the last original new-release Disney movies coming to Netflix this year include Solo: A Star Wars Story, Incredibles 2, Ant-Man and the Wasp, Christopher Robin, May Poppins Returns, Ralph Breaks the Internet, and The Nutcracker and the Four Realms, among others, little attention has been made that catalog Disney movies will reportedly still be heading to Netflix on a per-title basis.

The “pay 2” window essentially follows the free cable window when movies are released on networks such as USA Network and FX, among others.

“Wonder if Disney will explain how Disney+ will lose access to certain Pixar, Marvel, Disney and Star Wars films as they enter the “pay 2” window and revert to Netflix,” Greenfield tweeted.

Separately, Michael Pachter, media analyst with Wedbush Securities in Los Angeles, suggested Netflix sub growth could be negatively affected in Q2 following the service’s recent price hikes.

“Although domestic Q1 [ended March 31] subscriber additions will likely be in line with guidance, the price increases in April – June may limit growth (and guidance) to below 1 million net additions, which may weigh on the stock,” Pachter wrote in an April 11 note.

Netflix releases Q1 fiscal results on April 16.

 

 

 

 

Analysts Split on Apple’s Streaming Impact on Netflix

The day after Apple’s media coup announcing plans for an enhanced Apple TV app and related services, Wall Street appears divided depending upon which side of the Netflix stock it sits.

With more than 1.4 billion iOS connections globally, the revamped Apple TV+ service would appear to be a major competitive threat to Netflix’s global base of nearly 150 million subscribers and future growth.

With a history of industry disruption and creating consumer markets through iTunes, the iPhone, iPad and Apple Watch, conventional wisdom suggests Cupertino, Calif.-based Apple could upend Netflix’s burgeoning growth and market dominance — despite its relatively late entry into the over-the-top video ecosystem.

Needham analyst Laura Martin contends Apple TV+ could be “poison” to Netflix by virtue of Apple’s 900 million existing connected consumers and its ability going forward to bundle original content, discounted third-party OTT services, music and video games.

In a note, Martin writes that if Apple is successful converting just 10% of its unique users to Apple TV+, it would be able to fund content with a budget nearly triple Netflix’s. The analyst is also bullish on Disney’s pending Disney+ streaming service, telling media it could generate 50 million subs.

Dan Ives, media analyst with Wedbush Securities, says Apple is separating itself from Netflix by catering to family-friendly content on a secure platform.

“[Apple] is trying to differentiate itself [from] competitors and flex its Apple brand muscles to get more consumers on this ‘trustworthy’ platform,” Ives wrote. “We continue to believe the company has the opportunity of capturing 100 million consumers on this streaming service over the next three-to-five years.”

On the flipside, Raymond James analyst Justin Patterson says Netflix market position is well-built to withstand the threat.

“Similar offerings already exist, suggesting this service is more incremental than revolutionary,” Patterson wrote in a note. “We believe Apple’s and Disney’s launches will not adversely affect Netflix’s competitive position.”

Longtime Netflix bear Michael Pachter, with Wedbush Securities, says that with Apple reportedly spending $2 billion on original content, including licensing content from Netflix’ studio contributors – in addition to offering third-party OTT services — the SVOD pioneer will have increased challenges finding compelling content to justify its standalone service.

“We expect Netflix to suffer the double whammy of seeing existing content migrate to competitive services at the same time that new domestic subscribers are more difficult to attract,” Pachter wrote in a March 26 note.