Jason Schwartzman arrives at the premiere of Netflix's "Klaus" which has been nominated for an Oscar in the animated feature category that snubbed Disney's "Frozen 2." It was one of two Netflix animated films nominated in the category. Kevin Winter | Getty Images

Netflix is talking more about an area of content production that is at the heart of Disney's brand and history: animated films. Fresh off two Oscars nomination for Best Animated Feature — "Klaus," written and directed by Sergio Pablos, the creator of Despicable Me, and "I Lost My Body," a French production which the streaming giant bought at Cannes — Netflix chief content officer Ted Sarandos highlighted its upcoming animated films in the recent earnings call. Sarandos mentioned "The Willoughbys," which will be released in Q2, and animated musical feature "Over the Moon" in Q4, and he named-dropped Glen Keane's involvement with the latter. Keane is a former Disney character and supervising animator who worked on "The Little Mermaid," "Beauty and the Beast," "Aladdin," "Pocahontas" and Tarzan. Keane was named a "Disney Legend" by the entertainment giant. In 2017, Keane directed Oscar-winning "Dear Basketball," an animated short film based on Kobe Bryant's retirement poem. "These are big theatrical scale animated features and big scale feature films that would be competitive with anything you'd see in the box office, and I think people really do value them," Sarandos said on the call. Wall Street took notice, with J.P. Morgan analysts citing the comments from Sarandos ina post-earnings research note. "Netflix's commentary on animated films also stood out to us with Klaus recently nominated for an Oscar and Netflix building to several major animated feature films per year," J.P. Morgan analyst Doug Anmuth wrote. Klaus was watched in about 30 million homes worldwide during its first month, according to Netflix, and it claims the film had high repeat viewing. Frozen II dominated the 2019 box office (and is Disney's highest-grossing animated film of all-time), but unlike "Klaus" and "I Lost my Body," the Disney blockbuster was snubbed by Oscars voters. The film raked in $127 million its opening weekend in the United States and was Disney's sixth film to hit $1 billion in 2019. Disney's Pixar "Toy Story 4" was nominated.

"While Netflix's creative and experimental animation is paying off during awards season, Disney still dominates in enticing the masses. In 2019, "The Lion King" did over $1.6 billion worldwide, "Frozen 2" did over $1.4 billion, and "Toy Story 4" did over $1 billion. They are among the top 10 box office blockbusters in 2019," said Gene Del Vecchio, author of Creating Blockbusters. The increased focus on animation comes as Disney's streaming service, Disney Plus, takes off. Disney just reported its first subscriber numbers: 28.6 million subscribers since launch. Disney also has removed the majority of its content from Netflix, threatening its ability to cater to family-driven subscribers. "Each streaming service is aiming to appeal to all four quadrants, young and old, male and female, in order to gain new subscribers and retain current subscribers. Enticing all four quadrants helps justify the monthly subscription fee in a household," Del Vecchio said. "I doubt the most powerful animation franchise in the world [Disney] is quaking in their boots," said Jeff Wlodarczak, Founder and CEO of Pivotal Research Group.

Netflix Chief Content Officer Ted Sarandos (L) and then-Walt Disney Company CEO Bob Iger in 2015 in Los Angeles. Charley Gallay | Getty Images for LACMA

Netflix is not new to animation. It has had a deal with DreamWorks Animation since 2013, through which the animation studio, now owned by Comcast's NBCUniversal, brought animated film characters from popular movies to new episodic content: "Boss Baby Back in Business," "The Croods, "Shrek's Swamp Stories." At the time, it was Netflix' biggest-ever deal for original first-run content. In 2019, Netflix spent $15 billion in all on content. In 2016, Netflix and DreamWorks expanded the deal, though the length of the agreement was not disclosed by the companies. The relationship between the two has made Netflix the global home, excluding China, to multiple new original series, such as: Trollhunters, Dragons: Race to the Edge, and Dinotrux and granted streaming rights to the DreamWorks Animation feature film collection. Several shows in the pipeline including the recently announced Jurassic World Series. Dreamworks' parent NBC Universal is launching its own ad-supported streaming service in April, Peacock, with 600 hours of animated content, including from Dreamworks. WarnerMedia — which is owned by AT&T, which also owns HBO — is taking "Friends" to HBO Max, and NBC Universal has more marquee content, "The Office" and "Parks and Recreation," slated for Peacock, but there has been no indication of any change in the Netflix-DreamWorks arrangement. A Netflix spokeswoman declined to comment. Dreamworks did not respond to a request for comment.

Every time I talk to someone who has children they tell me their children are willing to watch the same animated episodes over and over and that makes it very valuable to Netflix. Neil Macker Morningstar analyst

Neil Macker, an analyst at Morningstar who covers Netflix, said one of the reasons for the DreamWorks deal was to provide NBCUniversal with a new stable source of cash flow, and as a result, he does not think that strategy is likely to change in the short-term. "In the long run, DreamWorks content may tilt to Peacock, but right now that's still up in the air," Macker said, and he noted that Universal movies will continue to be offered through other pay services, a different approach than Disney Plus which is making Disney movies exclusive. Netflix also signed a new deal with existing partner Nickelodeon (owned by ViacomCBS) last November to produce original animated feature films and television series based on the Nickelodeon library of characters as well as new intellectual property. But as in the case of Peacock, the long-term strategic plans of partners are being blurred by an onslaught of new streaming competitors. Newly merged ViacomCBS is working on a streaming service that will include Nickelodeon programming. Animation like DreamWorks and Nickelodeon episodic content is key to Netflix in providing children with shows they watch repeatedly. "Every time I talk to someone who has children they tell me their children are willing to watch the same animated episodes over and over and that makes it very valuable to Netflix," Macker said. Even as Sarandos talks up the "prestige" animated features and the Oscar nominations in this category come in, their ability to draw people into the streaming service only serves an end goal if Netflix can keep them as subscribers by offering their children repeat viewing options. "You're always trying to get content out to kids and not as worried about the level of quality," Macker said, and he added that was the same with the 1960s, '70s, and '80s television. "Obviously, certain genres are more important than others and the fact that kids are willing to watch the same episode over and over again ... if it was taken away, would the subscriber be more likely to move to another platform?" Macker said. "Netflix looks at what you watch when you sign up and what the kids are watching, and what it could cost if it was pulled."

Where Disney is weak