Disney faces major hurdles as it takes on Netflix, and needs to figure out Hulu fast

Disney is expected to roll out its own streaming service late next year to compete, primarily, with Netflix. With so much content at its disposal — Marvel, Star Wars, Pixar, and Fox properties — it's bound to be a popular service.

But in a new report distributed Friday, Barclays analysts said those assets don't guarantee a home run.

When Disney launches its streaming service, it will likely be one of three video services Disney is involved with, along with ESPN+ and Hulu. Both Fox and Disney own 30% of Hulu, which means Disney will double its stake in the service once its merger with Fox is complete.

Barclays sees these offerings as "reductive."

"In our opinion, Disney’s approach to OTT in the form of three separate services is reductive and is akin to launching networks for different demographics on television which is now essentially being replicated on the internet," the analysts said. "This is likely to limit its market opportunity and increase its operating and capital costs over time relative to a simplified one service approach (at least for non-sports content)."

The analysts said that Disney will need to clarify its bundling and pricing strategy in the near future for investors, as well as its plans to acquire the 40% of Hulu it will still not own once the Disney-Fox deal is complete.

READ MORE: Morgan Stanley predicted how Disney's Netflix competitor will fare in the streaming wars — and said it could be a $6 billion business

During an earnings call in August, Disney CEO Bob Iger said that "a number of products" will be affected by licensing agreements, particularly "Star Wars," which means that the streaming service will not have Disney's full library of content at launch.

According to an August Bloomberg report, Disney had been trying to buy back the rights to old "Star Wars" movies, but receiving pushback from Turner Broadcasting.

Explore BI Games

Take a smarter break in your day - and see how far you get.

Play now

Want more Business Insider in your news feed?

Add BI in Google so our reporting is easier to find when you’re searching for what matters.

Add to Preferred Sources

Barclays analysts see that as a risk, and said that Disney will have to work through licensing agreements "in order to have enough critical mass of content." They also said that Disney needs to figure out global distribution, "neither of which are trivial challenges."

But not even a bulk of successful content guarantees success for the service, according to analysts. 

"Success in OTT is more about: (a) content aggregation rather than segmentation, which is Disney’s go to market strategy at present (b) technology skills (such as discovery and recommendation) and data rather than content and (c) experience," analysts said.

They added that legacy media organizations were more oriented to selling wholesale (to pay-TV distributors) rather than retail (to customers directly). "These differences need a big shift in cultural and organization orientation (especially reporting lines), in our opinion, which is not a trivial challenge," the analysts wrote.

On top of all of these possible complications, though, is the Fox deal, which is expected to close on January 1.

"The company’s pivot will happen during what is likely to be a complex integration culturally between Fox and Disney," analysts said.

But even considering the potential issues, Barclays analysts believe Disney has "the key mix of assets to be successful," and think its upcoming Investor Day should act as an opportunity to clarify questions and give investors a sense of the scale of Disney's ambitions.