Welcome to the New Disney, Primarily a Streaming Service
You know The Walt Disney Company for its many business endeavors.
The Disney brand sells advertising on its cable and network television channels, character-based clothes and merchandise at its stores, and produces movies.
Oh yes, Disney also owns and operates a few theme parks, too.
For many of us, Disney equals Disneyland and Walt Disney World. However, the money people at the company view the situation differently.
Yesterday, Disney announced a sweeping reorganization with dramatic implications for the company’s future.
Welcome to the New Disney, a streaming service. What just happened, and how did we get here? Well…
I’m going to start super-basic this time as a jumping-off point to explain what just happened and why it matters.
As a child, you grew to love Disney for two reasons: its movies/TV shows and theme parks.
Those two aspects of Disney tie together, with theme parks selling merchandise and tie-ins from beloved Disney characters.
This business model has proven effective enough to anchor the business for nearly 100 years. I’m not joking here. Disney turns 100 in 2023!
However, businesses must adapt to changing consumer behaviors. The corporate buzzword for such action is pivoting.
Businesses pivot when they recognize another revenue stream that’s more lucrative than the current one.
Perhaps the most famous example comes from a product whose original marketing slogan was, “Tune in, hook up.”
Which business started as a video dating service? YouTube!
Yes, Google created the technology so that users could upload dating profiles to peruse.
Then, the data analysts quickly realized that people wanted to upload all sorts of videos, not just dating profiles.
The rest is history, as people watch roughly five billion YouTube videos daily.
This anecdote isn’t random, either. It also demonstrates humanity’s appetite for streaming media. And that aspect leads to the next topic.
The Power of Pivoting
Disney products overwhelm consumers with their ubiquity.
Whether we’re talking Marvel, ESPN, Star Wars, or Mickey Mouse, you’ll notice something Disney-related whenever you’re out in public.
Disney claims a kind of societal impact that borders on historically unprecedented. However, its business composition is challenging to describe.
Over the past year, Disney’s core businesses have included four main silos. In general terms, they’re television, movies, theme parks, and Disney+.
Disney earns revenue through all these avenues. Wall Street shows how impressive the company is by giving it a massive market cap.
In layperson’s terms, that’s the total value of a company’s entire stock. It’s a down-and-dirty way of determining how much Wall Street values a business.
As I type this, Disney’s market cap hovers around $226 billion, making it one of the world’s most successful companies.
Now, let’s contrast that to the competition. No, I’m not referencing Universal Studios, another theme park company, or Sony, another movie distributor.
Lately, Disney’s main competition comes down to one brand: Netflix.
With Netflix, I’m talking about another company with one of the most incredible pivots ever.
Netflix started as a DVD subscription service wherein customers paid a monthly fee. In exchange, Netflix mailed up to eight DVDs to their homes.
The system didn’t work great, as the post office frequently lost discs.
However, Netflix gained enough revenue to test some emerging technologies.
In 2007, Netflix learned from YouTube enough that the DVD business introduced a new streaming service. And the rest is history.
In 2020, Netflix exclusively exists as a streaming service, yet its market cap sits at $238 billion. Yes, that’s higher than Disney’s valuation.
Disney earns revenue from many different services, while Netflix only has one.
Disney Enters the Market
Since the advent of Disney+, I’ve discussed its importance to the future of the company.
Netflix’s numbers should explain why. Disney’s 80 years older with many more sources of revenue, yet Netflix is worth more.
Not coincidentally, Disney has since prioritized its own streaming service. Unlike competitors like HBO Max and Peacock, Disney methodically planned its offering.
During 2018, Disney restructured to create Direct-To-Consumer and International as its fourth silo.
At the time, I referenced this move as Iger calculating his legacy and indicated that the success/failure of Disney+ would play heavily into it.
Thrilled to share a first look at Disney+ with you! pic.twitter.com/iiqjFjaNra
— Robert Iger (@RobertIger) April 11, 2019
Nobody could have known what would happen next. Disney+ claimed a staggering debut that forced everyone to re-evaluate earning potential.
One respected analyst had suggested Disney+ would snag 10 million subscribers by the end of 2020. The service managed that in a day.
The analyst later increased his projection to 30 million, and Disney’s still almost doubled that.
The last confirmed total for Disney+ indicates that more than 60 million users subscribe.
Notably, Disney+ isn’t the company’s only streaming service, either. Disney also owns and operates ESPN+ and Hulu.
Disney claims more than 100 million subscribers across these three platforms, a massive footprint in the nascent industry.
One Rises While One Falls
As Disney has emphasized streaming, something else has played a significant role in entertainment.
Coronavirus has shut down the entire movie theater industry. AMC Theatres almost collapsed before negotiating a deal with Universal Pictures to keep it viable.
Cineworld, the owner of Regal Cinemas, reopened those theaters in time for Tenet. When that film failed at the box office, Regal closed once more.
While the theater industry suffers, Disney has gotten stranded in the chaos. All its theatrical releases have faced prolonged delays.
Disney eventually got fed up and released some titles like Artemis Fowl and Mulan on Disney+ instead.
The company recently confirmed that Pixar’s Soul will debut on Christmas Day, making it the best holiday gift imaginable.
Meanwhile, Marvel Cinematic Universe titles like Black Widow and Shang-Chi and the Legend of the Ten Rings face a more mercurial future.
These titles will allegedly enter theaters by the middle of 2021. However, the lack of a COVID-19 vaccine calls these plans into question.
So, Disney executives have struggled with a difficult choice. The company doesn’t want to abandon movie theaters, as they’re a healthy revenue stream.
However, the lack of operational theaters and willing customers has forced Disney’s hand.
When the company announced that Mulan would sell on Disney+ for $29.99, theater owners literally tore up promotional materials.
— UPROXX (@UPROXX) August 6, 2020
These businesses felt that Disney had betrayed them and killed the industry.
So, Disney took a different approach with Soul, making a free gift to current customers.
The difference this time is that Disney refused to announce this step until Regal Cinemas closed. By doing so, Disney wasn’t cast as the villain.
Everyone knows that streaming isn’t just the future; it’s also the present. Still, movie theater owners don’t want to admit it quite yet.
Disney Simplifies Its Processes
Now that I’ve discussed all the pieces on the board, it’s time to talk about what Disney just did.
The company has consolidated multiple divisions under one umbrella. The movie and television arms no longer stand alone. Instead, they’re married.
Until this week, Disney had operated Media Networks and Studio Entertainment as individual entities.
From now on, the company will view them as “legacy media” and manage them as a single silo, Media and Entertainment Distribution.
Disney is restructuring its media and entertainment divisions, as streaming becomes the most important facet of the company’s media business. https://t.co/7vd0X04XOv
— CNBC (@CNBC) October 12, 2020
This entity will manage distribution and ad sales across the Disney empire. It will also oversee all streaming service operations.
So, all media, including television shows, theatrical releases, home video products, and Disney+ projects, will join together under one umbrella.
Disney has restructured its content and distribution units to focus more on streaming https://t.co/NfZjb876RU
— Variety (@Variety) October 13, 2020
The Problem This Solves
By taking this approach, Disney streamlines all content. Until now, questions have persisted about who decides what, and where specific content will go.
For example, Mulan, as a title, exists as an animated movie available on home video and Disney+, but it can also be licensed to other networks/streaming services.
Then, there’s Mulan, the live-action movie, which had intended to debut in theaters before starting on Disney+ and becoming available on digital video services like Vudu.
Who makes the final decision on Mulan’s revenue? Before this week, a messy chain of command debated what was in each division’s best interest.
From a meta-perspective, Disney shouldn’t care about what’s best for any particular division, just the company as a whole.
This move establishes a definitive pecking order, with Kareem Daniel now in charge of Media and Entertainment Distribution.
Four other established executives – Alan Bergman, Alan Horn, James Pitaro, and Peter Rice – will run various pieces of Disney’s media empire.
Horn and Bergman remain co-leads of Disney’s movie division. Pitaro maintains control of sports on ABC/ESPN. And Rice runs television.
Daniel oversees everything, but all five individuals report directly to CEO Bob Chapek, thereby avoiding any issues involving egos.
The Questions This Raises
When you heard this, you probably wondered a few things like:
- Will Disney still release movies in theaters?
- Will everything go straight to Disney+?
- Is Disney abandoning network/cable television?
- What happens with live sports?
- Will Disney still release physical media?
These are all excellent questions. I’ll answer them the best that I can. Please understand they require at least some speculation, though.
Chapek appeared on CNBC yesterday afternoon after this announcement. He clarified that Disney is NOT done with theatrical releases.
The company shouldn’t do away with those, either. Right now, the company gets paid multiple times for the same product.
A theatrical release earns money, and then Disney sells it again on home video through digital and physical media sales.
Next, it earns licensing and/or advertising revenue when played on cable/network television.
If Disney produced all titles exclusively for Disney+, it’d kill off some revenue streams needlessly.
Expect a measured approach with some titles debuting on Disney+, while better films go through the standard theatrical release cycle.
So, that should answer the first three questions with three resounding NO! replies.
Answering the Final Questions
The fourth question is also a no. Disney earns too much from live sports advertising to abandon that model right now.
This answer may change in a few years as more people adopt streaming as their primary viewing behavior.
Please understand that this is already happening.
Whenever someone mentions lower ratings for the NFL, NBA, or really anything, they’re demonstrating a lack of understanding of the industry.
People consume media in vastly different ways than they did a few years ago. The degraded viewer numbers reflect that.
As for the last question, I doubt Disney’s done with physical media quite yet. However, this part of their business model counts as the shakiest.
Rumors persisted earlier this year that Disney would stop selling 4K UHD discs.
The company denied it, but that rumor leaked because someone somewhere got word that Disney was at least considering it.
Physical media becomes less relevant each passing down. Eventually, the juice won’t be worth the squeeze for Disney. We’re not there yet, though.
Overall, Disney has tidied up its core strategies and better prepared for a future where streaming rules everything.
From now on, you shouldn’t think of Disney as a theme park company that also hosts a streaming service.
These two core businesses are effectively equal now, and the balance will ultimately tip toward Disney+.
For Disney fans, that’s the best possible news, as it ensures the company’s financial solvency for many years to come!