3 reasons why Disney chose to start their own Streaming Service
Disney surprised many people last year, when they announced to become an OTT (Over the top- similar to Netflix) player. This streaming service, also known as Disney+, would stream some famous brands from media industry. It was a surprise since Disney earned millions of dollars by selling its content to various distributors. Now, Disney was not only going to lose earnings from distributors; but also going to invest billions of dollars in starting a new medium of delivery. Disney had a deal for its movies, with Netflix of $300 million in 2012. Somewhere around 2015, it started to become evident that Netflix was eating up the cable channel business of Disney. Disney had to decide between making more money from streaming services or create its own.
While Disney had to make this decision, money was never a challenge and neither was original content. Disney generated a healthy business of around $60 billion and profits around $10 Billion. They have the content of around 500+ movies and 7500+ episodes from TV. Disney decided to opt for streaming service keeping long term future in mind. Let’s look at some key reasons why Disney opted to be a streaming service itself rather than rely on others.
Know your customer
As of today, Disney has direct access to their customers only when they are connected through their channels. With their own streaming service, they can have all the access to their customers directly. With distributors, Disney would have to rely heavily on them for customer data. By having a streaming service of their own, they could have a clear detailed understanding of various data points, with valuable insights into various customer aspects. Disney does plan their roadmap well in advance. Basis this data, Disney could clearly formulate a well targeted roadmap. Clearly knowing which customer likes what would help them plan better.
Not only this but there is a deeply rooted branding aspect that plays an important role. It is human nature that, more you see something, you tend to get more and more involved in that. Disney already has its own ecosystem of theme parks, movies, and merchandise. with Disney+, they know what you are watching and what you like, it becomes really easy to support cross-sell opportunities for other products. Basically, it is a multi-dimensional aspect of circumventing customers, over Netflix’s uni-dimensional one.
Strong leverage backed by content
For some of the streaming services like Netflix and Amazon prime, they have to rely on the content they buy from mega-production houses or create your own. Disney, on the other hand, has a very stronghold in terms of the content, and there is absolutely no doubt about this. They have the world’s biggest franchises like Marvel, Star Wars, Pixar. With fox deal, they also have James Bond and Avatar in their kitty too. These are the franchises which have helped Disney strengthen their position. Not only this out of 20 highest-grossing movies of all time, 13 come from Disney. (Refer note 1).
They command 17% of the market share of the highest-grossing movies. Thus by signing a deal with Disney, any streaming service company would have an easy bargain. So Disney chose to build its own platform over negotiating with streaming partners. Post announcement of streaming service, Disney also declared that all their content will be exclusive. Netflix and such distributors will not have rights to stream that content anymore. Now that Disney had full control on their content, they can reap the benefits of that content themselves.
On the sports front, Disney has ESPN+, which will be merged with Disney+. ESPN+ already has a subscriber base of 2 million customers and this would be an easy addition to their live content. Further, they could also bundle cable channel as part of the subscription to Disney+. Thus with one single platform Disney would be able to leverage all their content and franchises.
Streamline Original content
For its biggest competitor of Marvel, DC, is doing a wonderful job on the small screen with some interconnected shows. Marvel has tried something similar with very limited success. With its new platform Disney+, it can experiment with as many original shows as possible and identify what worked well and what did not. As per early reports, it also plans to extend Marvel universe to TV with a show on Loki and Star wars universe with a show on Mandalorian
Also, most production houses are creating remakes like Lion King and Aladdin, to make most of their existing portfolio. With the new platform, Disney may opt to have shows/movies of smaller franchises as exclusive to the platform.
Most importantly, Disney did understand migration of customers from cable channel to OTT. Their own cable channel business was depleting. Disney realized that streaming is the future of the entertainment industry and cable channels in the past. Hence Disney ensured to foray in this new medium of streaming service.
A walk in the park for Disney?
While Disney enters the streaming business, it will have to address customer fatigue with already existing streaming services. Customers may not really opt for more than 2 to 3 subscriptions at one time. Being in that top 2 to 3 for at least a 100 million customer will not be easy. According to their estimates, they are targeting 60 -70 million customers by 2024. The number as per my opinion is not ambitious considering the strong content they have. Importantly Netflix and Amazon prime both enjoy 100 million-plus customer base. To be a strong competitor Disney must aim higher.
Disney has a strong top and bottom line, they have nothing to worry to invest a few billion in new business. A failure might hurt, but would still not impact the ongoing business and hence Disney+ is a very safe bet for the organization.
Note 1 – Data as on September 2019.
List of Movies – Iron man 3, Incredibles 2, Beauty and the Beast, Frozen, Star wars last Jedi, Black Panther, Age of Ultron, Avengers, Lion King, Infinity wars, Star wars force awakens, Avatar, Avengers Endgame.
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Images Courtesy Disney and DisneyPlus