Cable and Streaming Are the Same Thing to Disney
Cable and streaming are the same thing.
I feel like Professor Frink swearing that “Pi is exactly three” when I say that, as it feels like an innately dishonest statement.
From Disney’s perspective, I believe that’s the truth, though.
So, please allow me to explain how the company’s entertainment executives have adopted a holistic approach to their programming.
Some Of My Lies Are True
If I told anyone at Netflix that cable and streaming are the same, they’d either laugh at me or punch me. That’s just the truth.
As such, I need you to understand that what we’ll discuss only applies to Disney and (arguably) Comcast and Paramount.
In 2019, Fox ditched any realistic attempts at a streaming service in favor of selling its content library to Disney for a nice check.
As the owner of NBCUniversal and, thereby, NBC, Comcast still owns a network. Similarly, Paramount owns CBS.
So, those three companies find themselves at an odd moment in entertainment history when the line has blurred with content creation.
Let’s say that NCIS airs on Tuesday on CBS. The following morning, people can watch the new episode on Paramount+.
I’m not telling you anything new right now, but I need you to recognize the oddity of this distribution model.
CBS sells expensive advertisements for its popular network programs like NCIS, and they perform the best in the industry.
A few hours later, those same programs are available via a paid subscription on a Paramount-owned streaming service.
With Comcast, something airs on NBC in primetime. Then, Peacock begins to stream the same content in the morning.
If you were an advertiser, how happy would you be that you paid top dollar for something that CBS/NBC immediately devalued?
That conundrum explains just one of the major challenges that this trio of companies faces in a changing marketplace.
Now, we’ll discuss another.
The Faded Glory of Carriage Fees
At the start of the most recent college football season, millions of fans threw their remotes in frustration.
They felt rage because Charter, one of the top two cable companies, suddenly stopped airing all ESPN sports content.
So, the promised football games never aired on Charter, a situation that has happened just a handful of times in 20+ years.
Charter executives drew the line and played hardball with Disney, a move that totally backfired.
I wrote this piece that explained how Disney CEO Bob Iger absolutely toyed with Charter and got everything he wanted from the deal.
We all know that cable television is in steep decline. In Star Trek terms, “She’s dead, Jim.”
However, companies like Disney and Charter still make billions of dollars from this fading business model.
Nobody wants that gravy train to end, but the profit margins are withering by the year.
As Yahoo! Finance recently pointed out, “domestic operating income at ESPN fell 9% year over year to $780 million.”
Similarly, “domestic linear network revenue” declined by “11% year over year in the quarter.”
Overall, “operating income within the segment dropped 18%.”
That doesn’t mean Disney’s Linear Networks division isn’t profitable.
On the contrary, this segment earned $2.765 billion and netted $752 million.
How does that happen? Cable companies pay Disney massive carriage fees for its programming, especially ESPN.
Folks, ESPN earns about $11 in carriage fees from each cable customer every month!
Think of that as more than $8 billion in passive income for ESPN alone.
Would you willingly give up that much revenue or whatever’s similar in your budget range? Of course not! Neither would I!
Cable companies won’t pay that forever, though.
Introducing the New Math
A couple of weeks ago, I confidently/arrogantly/obnoxiously stated a contrarian opinion that Disney has cracked the math on ESPN.
I feel that way about all Disney’s Linear Networks, as it’s something I mentioned last fall.
For a time, Iger had announced an Everything Must Go sale, which really just meant he wanted to sell most Disney channels.
We’re talking about everything on cable that doesn’t have ESPN in the title and possibly even ABC.
Soon afterward, Iger flip-flopped, and I knew right then that Disney had figured something out.
What they deduced is something I’d said on my streaming podcast, Streaming into the Void, a few times before then.
The trick in balancing streaming services and Linear Networks is to view them as a unit rather than individuals.
In other words, cable and streaming are the same thing…if you view them that way.
Disney will release titles on Linear Networks first, but they’ll become streaming content soon afterward.
Sometimes, the reverse has become true, with Hulu’s Murders in the Building excelling when it aired on ABC.
Also, the program’s popularity increased on Hulu due to the heightened awareness.
That’s the vision here. Streaming and Linear Networks aren’t opposed to one another. They’re complementary pieces.
That statement wouldn’t apply to most companies…and maybe not even Comcast or Paramount.
Disney works differently due to its flywheel, and Iger has recognized this fact.
To wit, Iger just said as much during his appearance at MoffettNathanson’s Media, Internet & Communications Conference last week.
Iger Marries Linear with Streaming
Here’s the applicable quote:
“So, you’ve got the same executives managing both.
“And their goal is to drive basically bottom-line growth success.
“And so we put something on ABC, Grey’s Anatomy, Abbot Elementary. It goes on Hulu pretty quickly.
“In some cases, there’s some simultaneous. And what we’re getting is we’re an unduplicated audience.
“So, ABC is — if you look at the demos, older and a different audience than Hulu.
“And we’re basically aggregating greater audience and we’re amortizing costs.
“And we’re using the marketing of the traditional network really to help, in some cases, even though there’s not much duplicated audience.”
That’s Iger saying that Disney is dual-programming content now for two different generations of consumers.
Many people who grew up with cable television – that’s me! – aren’t willing to let it go. So, they consume media that way.
Conversely, the early adopters of streaming – including me! – and those who grew up with it watch that way.
At this point in time, there’s little overlap between the two consumer behaviors.
This convenient truth allows Disney to sell the same content twice for a single price…as long as you view the businesses as complementary.
In the process, Disney may dramatically cut the costs of its Linear Networks division while turning Direct-to-Consumer aka streaming profitable.
By taking this meta approach, Iger has solved two pressing problems at once.
One day soon, shows like Shogun and The Bear will air on ABC, and people will pretend to be shocked…but they shouldn’t be.
We’ve entered a new era of Disney media consumption, and it’s a shotgun marriage of the past and the future.
Thanks for visiting MickeyBlog.com! Want to go to Disney? For a FREE quote on your next Disney vacation, please fill out the form below, and one of the agents from MickeyTravels, a Diamond Level Authorized Disney Vacation Planner, will be in touch soon!