Author(s): Raghu Gopal
In a significant move, Disney announced this week that it will create its own direct-to-consumer video streaming services. It will launch a multisport, ESPN-branded online platform in early 2018, followed by a Disney service in 2019. In doing so, the company will end its partnership with Netflix that year.
Disney is targeting younger generations of video subscribers, who have been straying from traditional linear TV broadcast services such as cable, preferring the convenience of Internet-based alternatives like those from Amazon and Netflix. The company already runs an on-demand subscription video service for Disney movies called DisneyLife, which launched in the UK in 2015. This was widely regarded as a warm-up lap for offering a more expansive package of streaming content. Subscribers of traditional broadcast programming make the shift to streaming services during the coming decade, Disney saw this as the time for independence. As CEO Bob Iger commented, its new platforms will offer "much greater control over our own destiny in a rapidly changing market." Streaming is no longer a niche, but the company has been cautious to avoid eating away at its existing core revenue streams.
Disney has a wide portfolio of content. In addition to its venerable cast of characters, it also owns US TV station ABC, A+E Networks, sports broadcaster ESPN, Lucasfilm, Marvel, The Muppets Studio and Pixar, among other assets. Disney also has a 30 percent stake in Hulu.
Disney's new ESPN streaming service will be a solid test for the company. Sporting events have attracted customers willing to change access methods to get appealing content. With the new platform, Disney will offer 10,000 live regional, national, and international games and events per year including Major League Baseball, National Hockey League, Major League Soccer, Grand Slam tennis and college sports.
The Disney-branded service, which will start in 2019, will become the exclusive home in the US for movies from Disney and Pixar. This will include content such as Toy Story 4, the sequel to Frozen, and a live-action version of The Lion King, along with other highly anticipated movies.
Its new online platforms will use technology provided by video-streaming firm BAMTech, in which it took a minority stake in 2016. Disney also announced this week that it would pay $1.58 billion for an additional 42 percent stake in the company.
Not even a media giant like Disney is immune to the trend of cord-cutting and the company couldn't ignore the opportunity to distribute its wealth of franchises and content to new audiences online. Video is proving to be a battleground for providers as the likes of Amazon, Facebook and others have recently made announcements in this area. We believe that the move to Internet delivery of TV programming will see a return to large bundles of content (see CCS Insight Predictions for 2017 and Beyond).
Imitation is the sincerest form of flattery and the move by Disney is certainly a huge compliment to the success of Netflix and a strong validation of its strategy. Removing Disney content will pose a setback for Netflix. We expect other content and media owners to follow Disney in pulling their programming from the streaming site in a bid to differentiate their own offerings. This places greater importance on Netflix's investment in original content and puts into context its recent acquisition of comic book publisher Millarworld.
There are many streaming services available to subscribers and none are mutually exclusive. This is not a zero-sum game, and rivals can coexist. Nonetheless, budgets and leisure time are limited. Disney has attractive content, but it will have to ensure it offers the experience and pricing to match Netflix. Disney will need to recognise it's a challenger now, a strange position for a 95-year-old company.