Disney CEO – why Spiderman and Darth Vader are ‘coming home’ away from Netflix

SUMMARY:

Disney pulled the rug out from under Netflix by taking back Marvel and Star Wars properties, but it’s all part of a wider game plan than that, says CEO Bob Iger.

Taking the fight to Netflix

There’s been a lot of weeping and wailing at Disney’s decision to pull Marvel and Star Wars properties from Netflix, a move that’s been mostly interpreted as being a competitive hostile strike against the upstart content streaming provider.

While there’s almost certainly a fair degree of truth to that interpretation, the decision is also indicative of Disney’s own digital ambitions. Last year we noted that even Mickey Mouse as a global brand isn’t immune from the threat of incoming disruption and that Disney has recognised a need to shore up its defenses, as well as to push into new content delivery formats.

That’s what was behind the firn’s investment in, then acquistion of a majority holding in BAMTech, the digital media company spun off from MLB Advanced Media. That complements plans for an ESPN-branded multi-sport video-streaming service to be launched next year, followed by by a Disney-branded direct-to-consumer streaming service in 2019, which is where you’ll then find Spiderman and Luke Skywalker.

Last week at the Bank of America Merrill Lynch Media, Communications & Entertainment Conference, Disney CEO Bob Iger, who’ll act as chairman of BAMTech’s board, drilled down a bit more into the firm’s strategic thinking, prefacing what looks set to be a tectonic shift in digital content delivery.

The starting point is a recognition by everyone in all parts of the Disney empire – from movies through to theme parks – that the landscape everyone’s used to is changing radically. He explained:

Every year, we have a board retreat at the company. This year, in June, we decided that we have every business unit present to the board how their businesses were being disrupted and how they were contending with that disruption…What emerged from that meeting, which didn’t surprise us, is that..the biggest impact from disruption is being felt by the media networks.

Out of that meeting came the decision to accelerate moves in August to take a controlling position in BAMTech, pitched by Iger as:

the smartest thing we could do to contend with the disruptive forces on the media space, both in terms of strengthening the business but also investing for growth.

He added:

The most important thing for us to do in considering the launch of anything in the direct-to-consumer space was to have the technological capability and other capabilities to create a product and to distribute it successfully and to manage customers effectively. What BAMTech has…is really significant. They are the most robust live streaming platform that exists today. They have the ability to deliver easily 10 million live streams at a time, for instance. That was incredibly important, particularly as we consider it as an ESPN product.

In addition to that, they have a really strong ad technology platform, which gives us an opportunity to better monetize advertising and deliver more value to advertisers. They’re great at customer management that’s both on-boarding customers, essentially attracting customers, maintaining customers, billing etc, and they’re very strong when it comes to user data, which is also very valuable. So we saw in that platform exactly what we needed to consider going into the space.

Credentials

Iger is betting the farm on Disney and ESPN already having the necessary brand credentials to make a successful move into direct-to-consumer:

As we’ve looked at the trajectory of the business, we realized that there are very few brands that exist today that actually can go direct-to-consumer. We know of some already. Netflix clearly created that value over time. HBO is an example of that. But when you think about all these brands that exist in media, there are very few that you can actually see as they exist today as a direct-to-consumer brand.

ESPN and Disney are two of them, which is quite interesting, and we’ve known that for a while and we’ve invested with that in mind. But what struck us is that the opportunity is now presenting itself for us not only to go into that space, but to move into that space as a long-term strategy for the company in terms of creating growth and solidifying our media businesses.

Which brings us back to the new branded media services and the decision to bring Marvel and Star Wars ‘back home’ and away from third parties like Netflix:

What we announced…when we announced the BAMTech controlling position is that the Disney movies would be on this platform. We left open what we are going to do with Marvel and Star Wars. We’ve now decided that we will put the Marvel and Star Wars movies on this app as well. So it will have the entire output of the studio: animation, live action at Disney, including Pixar, Star Wars and all the Marvel films.

In addition to that, we have been spending a fair amount of time for a very long period of time developing original content on the movies side for the app. So the studio is is already developing and will produce four to five original films exclusively for the app, primarily live action.

In addition to that, the studio library product will be available on the app, too, and you have to figure there’s roughly 400 to 500 films. On the TV side, we’re going to create four to five original Disney-branded television series for the app, and we’re going to produce probably three to four television movies that are Disney-branded. In addition to that television library will be on the app, and you have to think about that in terms of roughly 7,000 episodes of Disney-branded TV.

That’s a very powerful arsenal of globally-recognised content to have as an asset when moving into this kind of Subscription Video On Demand (SVOD) business and Iger knows it:

I have described essentially a very, very rich treasure trove of high-quality branded content for this app, and so we’re going to launch. We’re going to launch big, and we’re going to launch hot, in our opinion. And we’re very confident that as you look at the TV space or the media space, there is not only a room and a demand for Disney, but we’ll have content to back that up. Then, in addition to that, what I’ve been describing is largely a domestic service, we’re going to launch it internationally as well. It’s possible that some markets will launch the service earlier than we’ll launch in the United States because of windowing opportunities that we have on the motion picture side that we don’t have here in the United States.

Beforew the Disney push, there’s the ESPN app to launch, described by Iger as akin to iTunes, with the focus very much on the end user experience being the primary driver:

I think you have to think about it as a sports marketplace. We’re probably going to start out with one big bundle of live sports. But I think if you look at where consumers are going, we’ve seen, over time, a pretty significant shift in authority from the distributor and the creator of content to the consumer of content. The consumer probably, over time, given particularly what digital technology enables them, will demand more of a pick-and-choose experience, meaning more of a tailored experience for them.

We think that we know the technology is going to enable it. We think, ultimately, the consumer will demand something like that. That’s not imminent, but the way we are looking at it over time and the technology capabilities that we have, will give us the ability to enable that kind of consumption, that kind of purchase.

My take

The changing nature of the digital media landscape in terms of video content is fascinating to track. The veneration of Netfix as disruptive enfant terrible has morphed into wary concern about its growing clout. Taking away premium value content like Star Wars and Marvel is a savvy defensive move by Disney. It opens up the question as to whether Netflix’s strategy of producing its own original content will be enough in its own right to balance out viewer interest. How many seasons of The Crown do you need to counter the loss of Goofy and Darth Vader?

Image credit - Disney/Marvel

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