Of all the new streaming services popping up like daisies in the consumer landscape, few besides Netflix have attracted as much recent attention as Disney’s new “Disney Play” service, set to premiere in Fall of 2019. Fans of the genre are all paying attention, because every Pixar, Disney and Marvel Studios film released to digital will now be going through this new Direct-to-consumer pay service.

The new service will cost less than Netflix does, which is a direct reflection of the more limited palette of choices Disney plans to offer to subscribers.

That means every Star Wars movie and every Marvel Comics movie made from now on is going there instead of to Netflix. This does mean that Disney will be leaving about $300 million a year in licensing that they would normally be getting from Netflix on the table. They’re gambling that they’ll recoup that and their towering setup costs via subscriber memberships on their new service. It’s unlikely that they would be proceeding if they didn’t think this decision would work in their favor.

The Walt Disney Company CEO Bob Iger (Photo by Chip Somodevilla/Getty Images)

Netflix has been in the distribution game since 1997, and has upended both the television and motion picture industries. It has more subscribers now than cable TV does. Up until about six years ago, the studios were all quite content to let Netflix handle the distribution of their content. After all, it’s expensive to build a distribution network like the one Netflix has, and frankly, over the past 21 years Netflix has gotten very good at it. 

And then six years ago, everything changed.

Wagging the Dog

Six years ago, Netflix started creating its own content. This got the attention of the studios, because suddenly they had the potential of crowding out the content coming from the studios by becoming a studio themselves. They had used the studios to build their pipeline, and while the studios weren’t paying much attention, they built the biggest single distribution company in the world.

Now Netflix has plans for over a thousand new movies and series for 2018, far beyond the capacity of any single traditional studio, and the majors are quaking in their boots. All of a sudden, Netflix is beating the studios at their own game. So are Hulu, Amazon, YouTube and Apple, all of which are producing their own content. Suddenly the traditional studio model is being stood on its head and shaken for the loose change that might fall from its pockets.

Disney’s new streaming service isn’t spurious, but the inevitable result of the changing roles of the digital distribution services turned producers. 

Only So Much Water in the Pool

We are seeing the initial surge. Everybody has suddenly realized that there is a swimming pool, and everybody is thundering into the back yard hoping to take a dip. The problem is that reproducing the distribution network already built by the major services on a studio by studio basis is fraught with dangers.

  • It’s expensive to implement, meaning it could take years to amortize the costs.
  • It’s new territory for most of the studios, and that can lead to poor technical performance and a bad first impression for potential customers (CBS All Access continues to have this problem, and their service has been running almost five years now).
  • Many studios have enough content to build their own service, but not a lot of current, popular content (Sony’s Crackle, and again, CBS All Access), and so many are struggling to get the viewership numbers they would need to make a real profit center out of it. In the case of CBS All Access, for example, that service serves merely as a showcase for their content to facilitate higher fees when licensing that content to cable.

Analyst Todd Juenger of Bernstein Research has written that Disney will need about 50 million subscribers at $8 a month to make all this worth while. Further, the transition from TV licensing to direct to consumer will simply be moving money from one pocket to another. They’re not so much creating new money as they are reacting to the shifting sands of the modern marketplace.

Netflix began by building their network, observing what worked for the consumer audience and what didn’t, and started making their own content to fit that mold. The studios are all operating at a distinct disadvantage – without establishing their distribution pipeline first and without being able to select from a smorgasbord of productions from other studios to bolster their lineups, few of the johnny-come-lately’s will be able to compete with the new digital distribution production business model.

Disney may be one of the only ones that can. They’re already the biggest single provider of original entertainment with a production portfolio going back almost a century, and with their recent acquisition of 20th Century Fox, that position is likely cemented. None the less, they’ll have to dump billions of dollars into creating their infrastructure – and they’ll have to answer to Wall Street as well. All this has to turn a profit.

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