The Streaming Wars--Part III

Disney +

On November 12, 2019 Disney +, a new streaming service from the Walt Disney Company, launched with a lot of fanfare. On day one, media reports were that they had 10 million subscribers on day one. For a while, they were adding a million new subscribers per day and showing great early strength in far flung places such as Australia. Netflix, long the winner in the streaming wars now had competition from Disney, the king of content, and Amazon and Apple with the deepest pockets in business history. Alphabet (Google) with their popular sleeping media giant, YouTube, was considering entering the fray along with Facebook. Other players are also lining up including AT&T with HBO Max, and Comcast with their new Peacock service starting in spring, 2020. There are others that we will discuss in upcoming posts.

Candidly, I was surprised when Apple announced that they were launching Apple TV+. Bob Iger, the long time CEO of Disney had sat on the Apple board for years. My presumption was that Apple might get involved with some form of co-production with Disney or take a significant equity position in Disney itself (15-20%). Bob Iger wrote in his recent autobiography that he had a great relationship with the late Steve Jobs, and had Jobs lived, Apple might have bought The Walt Disney Company outright. So, Apple’s entry, with a skinny lineup at $4.99 per month, was low cost but did not appear to have significant appeal to prospects. Apple does have over $100 billion in cash as I write so they may buy up properties pretty easily.

The Disney lineup is familiar to all of you. They have a film archive going back to the 1930’s, the Fox film library, ABC TV and 4,000 titles for viewers plus amazing franchises such as Star Wars, Marvel and  many others. What fascinates me is the powerful bundle that they can put together of Disney +, ESPN+, and Hulu ( of which now Disney has a controlling interest). The bundles vary but the trifecta of Disney +, ESPN+ and Hulu can be had for several dollars less than what many of us are paying for Netflix. It has lots of appeal and is not simply for families with young kids as many seem to be saying. Netflix, as mentioned in our last post, has been borrowing heavily to produce original programming (much of it high quality) so it is unlikely that they can cut subscription rates in the U.S. and remain viable in the credit markets.

Disney and the other media/financial giants can play “the long game”. In fact, Disney says that they do not expect Disney + to be profitable until 2025. An article in BARRON’S  in mid-November said that, for a few years, Disney + will “look like a little Netflix inside Disney.” So, while it will be a drag on earnings, they will bounce back with strength from theme parks, blockbuster films and do not forget merchandise. That is a huge profit center for Disney. The company also has a hedged position if somehow direct to consumer (streaming) fails as they will remain a powerful player in cable. Also, where do they spread their content? Will the Disney Channel survive? Do they put a new show with promise on ABC, Hulu, FX or Disney +? They have a real challenge in optimizing their content for maximum profit. Most companies dream of such a problem!

I asked a group of millennials if they had subscribed to Disney +. About 40% said yes and also that they liked it very much. One fellow in the corner said nothing but was beaming. He approached as I was leaving and said, “I love Disney +. For the rest of my life, I will watch a Star Wars film at least once a week.” That, my friends, is a franchise, with a Warren Buffett deep and wide moat!

So, Disney looks to be a survivor when the smoke clears a few years from now. Will they be the dominant player? Time will tell. More to come in a few days.

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com