Disney is investing big in streaming. Here's why
New York (CNN Business)“Disney’s Folly.”
That’s what some in Hollywood dubbed “Snow White and the Seven Dwarfs” before it premiered in 1937. Critics argued that Walt Disney was risking his studio’s reputation with a risky film that no one would sit through.
But in the end, Disney’s gamble paid off. “Snow White,” the first animated feature in America, became a blockbuster that helped make Disney the company it is today.
Eighty-two years later, Disney (DIS) is about to unveil another risky innovation — one that could be as vital to the company’s future as “Snow White” was to its origins: the launch of Disney+.
The company’s much-anticipated streaming service debuts on Tuesday in the United States, Canada and the Netherlands. It is Disney’s first charge into the “streaming wars,” which has media companies like WarnerMedia, CNN’s parent company, as well as tech giants like Apple (AAPL) battling with Netflix (NFLX) for consumers’ time and money.
For Disney and its CEO Bob Iger, Disney+ represents a major shift in the company’s business focus. Disney has made it to the top of the media world over the last century thanks to its kingdom of record-breaking blockbusters, theme parks, TV networks and Buzz Lightyear action figures.
So why would the most dominant media company in the world invest billions of dollars in order to create a new unit in its already lucrative business? It’s because Disney needs to adapt to the rapidly changing media world, according to Jeffrey Cole, director of USC Annenberg Center for the Digital Future
“I think Iger has seen dinner and a movie become Netflix and Uber Eats,” Cole told CNN Business. “Disney is fully committed to streaming because they think that streaming is going to be at the core of the whole company going forward.”
The service arrives at a volatile time for the media industry. Mega mergers from the last few years underscore a drive for scale to compete with digital-native rivals. Disney+ is another way for the company to keep up with changing trends.
Iger said as much in an earnings call earlier this year, telling analysts, “This is a bet on the future of this business.”
The chances for a “folly” here are pretty slim as Iger has left little room for error, investing billions in the service and spending even more to snap up much of 21st Century Fox’s assets to fill up Disney’s content war chest. And since this will likely be the last major undertaking of Iger’s career, his legacy is inextricably tied to Disney+.
“It’s going to be the most important product our company has launched in a long time, certainly in my tenure,” Iger said in a separate earnings call over the summer.
That Disney magic
Disney is late to the streaming game (Netflix has nearly 160 million subscribers, after all), but it hopes to make up for lost time by offering a deep content vault at an irresistible price.
Its library includes multiple Marvel films and shows, an original Star Wars series called “The Mandalorian,” Pixar films and shorts, documentaries from National Geographic and Disney animated classics. The service will also be the exclusive streaming home to “The Simpsons” — TV’s longest-running prime time scripted series.
“Avatar” and “Avengers: Endgame” will be available on the service at launch, which means the two highest-grossing films of all time will be on Disney+ on day one.
All of this will cost $6.99 a month — half of what Netflix charges for its standard plan. A bundle with the company’s other streaming offerings, ESPN+ and an ad-supported Hulu, will cost $12.99 a month.
“Disney’s primary advantage is its extensive catalog of content,” Suzanne Scott, an assistant professor at the University of Texas’ Moody College of Communication, told CNN Business.
The “Disney Vault,” the company’s practice of releasing its films on home video for a limited time only, has been the “bane of many Disney fans existence,” according to Scott. That changes with Disney+.
“While this scarcity model certainly benefited Disney, the promise of having access to everything in the Disney vault on demand is a huge draw for fans,” she said.
Disney+ also has the advantage of being a part of a company that many see as more of a lifestyle brand than conglomerate. This allows Disney to market the service to consumers differently than most of its competitors, according to the New York Times’ Brooks Barnes, who covers the entertainment industry for the paper.
Barnes wrote about Disney’s marketing blitz last month, noting that Disney+ ads appeared on its fleet of buses at Walt Disney World, while the Disney Cruise Line, which “carries more than 12,000 passengers at any given moment,” offered sneak peaks of its shows onboard.
“Disney already has a direct connection to consumers,” Barnes told CNN Business. “Every theme park customer coming through the gates is someone to market Disney+ to. They have Disney credit cards. People own Disney time shares. Disney cruise ships. None of those things are similar to other companies.”
Disney’s investment in streaming will not be cheap. The company could end up losing more than $2.3 billion in fiscal year 2020 and another $2.1 billion in fiscal year 2021 in operating cost due to Disney+, according to estimates by research firm, MoffettNathanson.
“It’s going to basically require many years to recoup the losses,” Michael Nathanson, a media analyst and founding partner at MoffettNathanson, told CNN Business. “And they may have to spend even more money than they currently believe to keep that flywheel of fresh content going.”
So the stakes are high for Disney, but Cole thinks it’s in a great position to succeed.
“I think it’s got a better shot than any others,” Cole said. “They’ve priced it right, they bring a brand and it comes at a great moment in history for the company.”
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