Disney’s prospects as a streaming provider are questionable, this analyst says

Wishes and dreams may be the calling card for the Walt Disney Company (Walt Disney Company Stock Quote, Chart NYSE:DIS) but with the debut of Disney+ this fall, the media giant is hoping that it can carve out a big enough slice of the streaming pie to make the gamble worthwhile.

Analyst Ross Healy isn’t so sure, saying that five years down the road it’s more or less a tossup whether Disney’s fairy tale comes true.

“Disney has decided to take on Netflix and do their own thing. They’ve got some super programming and I don’t doubt that it should be fairly popular. However, the question in my mind is how much room is there?” said Healy, chairman at Strategic Analysis, to BNN Bloomberg on Thursday.

“Why did Disney do this? Part of it suggests to me that management was looking at the Netflix price to book ratio and said, ‘We want that, so let’s get into that business.’ The opposite might happen. Netflix may be driven down on account of the fact that if you start to get more and more competition in their space it’s going to be tougher and tougher to make a buck and grow,” he says.

The streaming wars are heating up big time, not just with Disney+ arriving in November but with a growing list of contenders including Netflix, Amazon, Hulu, AT&T and, coming soon, NBC Universal. The prevailing wisdom is that there is room enough in the average household’s screen-watching for a number of paid subscriptions but where that market reaches the saturation point is unclear.

Healy says that while it’s anyone’s guess at this point, he warns that the market tends to react quickly to signs that a venture as big as Disney+ is faltering.

“When you look out five years, fundamentally I flip a coin,” he says. “Technically, Disney has had a long-term peak at about three and a half times adjusted book value for a long time. It’s now above that. As long as it stays above that then the market believes but if it goes below the waves, the market will stop believing and stop expecting that Disney will be able to expand. I would watch that very carefully.”