13 October 2020

CNBC: “Disney reorganizes to focus on streaming, direct to consumer”

On Monday, the company revealed that in order to further accelerate its direct-to-consumer strategy, it would be centralizing its media businesses into a single organization that will be responsible for content distribution, ad sales and Disney+.

Shares of the company jumped more than 5% during after-hours trading following the announcement.

The move by Disney comes as the global coronavirus pandemic has crippled its theatrical business and ushered more customers toward its streaming options. As of August, Disney has 100 million paid subscribers across its streaming offerings, more than half of whom are subscribers to Disney+.

I would not characterize it as a response to Covid, CEO Bob Chapek told CNBC’s Julia Boorstin on “Closing Bell” on Monday. I would say Covid accelerated the rate at which we made this transition, but this transition was going to happen anyway.

Sarah Whitten

As in other areas, the pandemic is accelerating an important trend in entertainment, the restructuring around streaming and online experiences. Faced with high uncertainty about the near future, movie studios have tried different short term approaches. Some movie releases have been delayed for up to a year, from Black Widow to No Time to Die and Dune, in the hopes that things will largely return to normal until then. Other studios took their chances with the old model of releasing in theaters, with relatively poor box office results. Disney itself tried a mixed tactic by releasing the live-action adaptation of Mulan online on Disney+, but charging subscribers $30 to watch it.

Black Widow delayed to 2021

But the longer the pandemic continues, the harder it will be to cling to old business models. Already a number of cinemas are considering closing, caught in an impossible situation between the reluctance of consumers to visit movie theaters and the shrinking numbers of upcoming movie releases. When studios will eventually decide to release movies, it’s possible there will be far fewer venues to watch them in. Disney may be the first to publicly announce a ‘streaming-first’ strategy, but I doubt it will be the last. I assume their experiment with Mulan did not go down well with customers, since other upcoming releases will be free of charge for subscribers.

Personally I was never a big moviegoer – in 2018 I went to the movies only twice, for Bohemian Rhapsody and Avengers: Endgame, and maybe once in 2019 – I simply waited for new movies to be released on HBO before watching them. If this ongoing crisis encourages movie producers to finally speed up their online release schedule at no extra charge, I would count that as a positive development. When the disease will finally be under control, I am confident people will return to cinemas, but until then smaller incomes from streaming are certainly better than no incomes from delaying the release.

The downside of Disney’s emphasis on streaming is that Disney+ is currently availably in a handful of countries, a geographical barrier that makes little sense in a digital-first world. The company will certainly expand the availability in the coming months and years to capture more customers, but in the short term these arbitrary limitations will once again encourage piracy for those left out. On top of that people will be think twice before signing up for yet another monthly subscription.

I would argue that one of Netflix’ success factors was the fact that it quickly expanded internationally – where it also enjoys less direct competition compared to their home market in the US – and that it tacitly allowed people to share accounts, leading to even more growth and positive word-of-mouth. Their first mover advantage may help them retain customers as other streaming providers expand and start competing in more markets.

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