How Disney Forged an Insurmountable Digital Lead
While Netflix dominates the streaming industry, The Walt Disney Company has quietly forged an insurmountable lead in one key category.
According to recent analysis, Disney owns such a sizable advantage in gated high-quality content that it has lapped the field.
This revelation has finally revealed Disney CEO Bob Iger’s long-term thinking with his Fox acquisition.
(Charley Gallay / Getty Images for Disney)
Let’s talk shop about a Disney triumph from five years ago that is paying dividends today.
Remember That Time Disney Swallowed Fox?
Mandatory Credit: Photo by JUSTIN LANE/EPA-EFE/Shutterstock
Throughout 2022, critics of Disney lamented one particular transaction as the company’s worst mistake.
To some, Iger had badly overestimated the value of the Fox assets he had acquired in 2019.
Almost exactly five years ago, Disney finally completed the transaction that swallowed Fox’s media assets.
In the process, Disney purchased a vast back catalog of 20th Century Fox movies and television programs.
Have you ever looked at the list of content that Disney purchased? It takes three Wikipedia entries!
I’m serious. Here are the 20th century (note the small c) films and the ones from the 2000s. I quickly threw this list in Excel to count.
Photo: Getty
If I cut and pasted everything correctly, Disney purchased 1,827 films from the 20th century and another 532 from this century.
Then, we have the 20th Century Television series. I tracked more than 1,500 of them, and that’s before we count individual seasons.
Also, I’m not including Fox programming in that. So, we could add programs like X-Men: The Animated Series.
We probably should do that since X-Men ’97 debuts in a matter of weeks.
So, we’re talking about 2,400 movies and tens of thousands of hours of television programming.
Disney paid Fox $71.3 billion to acquire these assets, which is a massive investment for any corporation.
Photo: mentalfloss.com
However, Disney mitigated the expense by selling parts of the business it didn’t need like Fox’s video game division and the RSNs.
Remarkably, Disney has done a fantastic job in managing its long-term debt in spite of the pandemic’s financial devastation.
Photo: Getty
The company currently lists long-term debt of $41.6 billion, and it has cash on hand of $7.2 billion.
In short, Disney has already paid for half of Fox after only five years and despite unprecedented external challenges.
How Disney Benefits
Getty
Let’s be realistic here. Many of the assets Disney acquired weren’t exactly A-list content.
I mean, Disney owns Romper Room now, and I’m guessing 80 percent of the people reading this don’t even know what that is.
However, several of the titles are legitimately viable, something Disney has already proven and will continue to prove.
Source: 20th Century Studios
Avatar: The Way of Water became one of the three most successful box office titles ever, and a third film comes out next year.
In 2024, Disney will release sequels/reboots for the Alien and Planet of the Apes franchises.
Then, we have the aforementioned X-Men cartoon plus many other shockingly valuable adult animation titles.
(Photo by VALERIE MACON / AFP) (Photo by VALERIE MACON/AFP via Getty Images)
In purchasing Fox, Disney acquired The Simpsons, Family Guy, American Dad!, Futurama, Bob’s Burgers, and King of the Hill.
Bob’s Burgers earned a movie spinoff in 2022, while Futurama and King of the Hill have or will air new episodes on Hulu.
Disney is already effectively monetizing its streaming services, Disney+ and Hulu, by using these (former) Fox assets.
We’re witnessing the early steps of a multi-pronged approach to monetizing the Fox purchase.
Remarkably, Disney has only scratched the surface, though. In fact, we’ve got data that supports that conclusion.
Disney’s Walled Content Garden
You can read the full report here, but the basics are simple.
Some television series are worth more than others. The rationale depends on popularity and the number of episodes filmed.
Obviously, a single-season series with only a handful of episodes won’t be as valuable as something like Grey’s Anatomy.
Even that statement requires an asterisk, though. Are you familiar with Fox’s short-lived sci-fi western, Firefly?
Even though Fox prematurely canceled the series before it had finished season one, its popularity eventually justified a movie.
Take a wild guess who owns the rights to all future Firefly content. Yup, Disney bought that from Fox!
Photo: Getty
Where can you watch Firefly on streaming? The answer is, of course, Hulu.
That’s what Iger envisioned in 2019, and we’re watching it come to fruition today.
Disney threw a giant bag of money at Fox in exchange for possession of high-quality content.
Photo: DIsney+
Now, Iger can take whatever approach he prefers with said content.
Disney can take the so-called “walled garden” approach and keep that content at Hulu and Disney+.
Alternatively, Iger’s team can license that content to other businesses, ones who lack their massive back catalogs of content.
Photo: Netflix
Netflix must feed the content beast, but it only started airing original titles in 2012. It simply doesn’t have enough of its own programming.
Disney can sell Netflix any programs that don’t quite fit under the Disney umbrella like This Is Us.
You won’t associate that show with Disney because it wasn’t when it originally aired. It was a 20th Century Fox production.
Photo: Netflix
Ironically, now that Fox’s Tubi streaming service is performing well, it also needs content.
So, Disney is licensing some of Fox’s old content back to it!
Disney’s Insurmountable Digital Lead
Disney
Companies like Fox don’t have any choice here. They lack the digital content needed to satisfy customer demand.
This persistent issue forces them to take hat in hand and go to Disney to negotiate programming licenses.
That’s found money for Disney every time it happens and let me tell you something. It’s about to happen a LOT more.
The Walt Disney Company
Ampere Analysis has established the following creature for walled garden content.
“Titles with ‘licensing power’ fulfil the following criteria: they have completed their first run; have at least three seasons; are Scripted; of US-origin; and still maintain consumer engagement”
Credit: Disney
Can you guess how many titles that Peacock owns that have licensing power?
Well, you might have looked earlier, but the answer is only 47 titles.
Warner Bros. Discovery claims 54, while Disney’s closest competitor, Paramount, offers 72 programs.
So, these three major media corporations have created a grand total of 173 titles with “licensing power” after all this time.
Here’s why Disney has attained an insurmountable lead. Its total number of programs with “licensing power” is a whopping 148.
Yes, Disney holds the rights to nearly as many programs as its three closest competitors…in combination!
The House Always Wins
Photo: Getty Images
During the next decade as we transition to a digital broadcasting society, Disney can pick and choose what it keeps vs. what it licenses.
Even better, Iger can do both if that’s his preference. For example, you can watch This Is Us on Hulu right now, too.
Netflix has paid Disney for the privilege of joint licensing of this television series!
The Walt Disney Company
Hulu can air the same content, while Disney picks up a fat check from Netflix for temporary joint custody of the product.
Once the license expires, Disney can reclaim exclusive rights to This Is Us if so inclined…and Netflix will have expanded its popularity in the interim.
Photo: Netflix
Netflix is paying Disney for a process that builds awareness and popularity for content that Disney owns.
That same statement applies to services like Tubi, Pluto TV (a Paramount business), and Amazon Prime Video.
These businesses need content, and one company has cornered that particular market.
Photo: English Jargon
In short, everyone else in the streaming industry has to play ball with Disney because Iger has bought all the prime digital real estate.
Iger won this fight five years before anybody realized it was happening.
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