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Disney’s streaming growth isn’t as strong as it could be—here’s why

Disney’s streaming growth isn’t as strong as it could be—here’s why

As The Walt Disney Company (HAZE -0.37%) is growing its flagship streaming service, Disney+, and making content changes that have angered a select group of American consumers. Here’s why Disney should stay the course and not falter due to recent setbacks.

Alternative offers abroad

US advocacy group Parents Television and Media Council (PTC) has strongly condemned Disney for adding R-rated titles Deadpool, Deadpool 2and Logan to Disney+ in the US. The organization similarly expressed outrage when the TV-MA rated the Marvel series Daredevil, Luke Cage, Jessica Jones, The Punisher, Iron handand The defenders was added to the streaming service in March. The group claims Disney “made a promise to families” not to include R-rated content and that the latest additions violate subscribers’ trust.

While there is no official statement from the company making such a promise, the supplements understandably deviate from some consumers’ expectations. However, stiff competition in the streaming wars suggests the move is necessary. Disney+ stands to gain significantly from diversifying its catalog, especially since the US is the only country outside of Latin America where the company has limited its library to family-rated programming. For example, in Europe and many other regions, Disney+ launched with six categories on the home screen: Disney, Pixar, Marvel, Star Wars, National Geographic and Star.

The “Star” section is limited to some countries outside the US and offers more mature content from FX and Hulu. The option allows Disney to use more of its extensive content library to attract international subscribers, which is useful since Hulu is not available outside of the US and Japan. Overseas, the higher-rated content has always been available along with customizable parental controls, options that were introduced in the US in March when the TV-MA Marvel series was added.

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In March, Disney streaming president Michael Paull stated, “We’ve experienced great success with an expanded content offering on Disney+ across our global markets and are excited to continue that here in the US.” The company is beginning to test the waters in the US by slowly adding adult content, which has the potential to help Disney+ remain competitive in the most crucial markets in the world.

A well-rounded service

The US has the largest video streaming market on the planet, worth $34.1 billion – 85% larger than the second largest market, China. If Disney continued to offer only PG-rated content, it would force many American households to get alternative content elsewhere and make competitors like Netflix (NFLX -0.08%) more attractive. Offering a diverse content library makes it easier for consumers to subscribe exclusively to Disney+, bringing it one step closer to dominating the important US market.

Plus, Disney+ can only go so far with names like Pixar and Marvel; more mature content has the potential to attract those who actually pay for the service – parents. Rumors have swirled that Disney CEO Bob Chapek eventually wants Disney+ to absorb Hulu, while former CEO Bob Iger hoped the Disney streaming service would remain focused on the five original brands. However, the company has seen positive subscriber retention and engagement in countries with the additional Star brand.

Adding adult content makes Disney+ a more comprehensive platform – and therefore easier for consumers to ditch competing services. The crowded streaming market means Disney should use everything in its wheelhouse, and by adding higher-rated content it can use the big brands like Star Wars, Marvel and Pixar, as well as the attractive Fox library and Hulu originals.

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Will US consumers be on board?

Recent complaints about the additional growing content on Disney+ have come from specific organizations in the US and are unlikely to affect the majority. American consumers were introduced to streaming parental controls a long time ago with the rise of Netflix, and would more than likely prefer the extra content.

Disney+ is already one of the best-value streaming services at $7.99 per month. Adding company-owned titles from FX or older films from Fox’s vast catalog would come at no additional cost to Disney and only increase the value of Disney+, increasing its competitive advantage. The company should stand firm in this case if it wants to have a chance to win the streaming wars.

Dani Cook has no position in any of the aforementioned shares. The Motley Fool has positions in and recommends Netflix and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool has a disclosure policy.

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