With the announcement that its streaming service Disney+ will launch in Fall, Walt Disney’s CEO Bob Iger clarified that ‘we’re starting from a position of strength, confidence and unbridled optimism’.
To some, this may be an intimidating choice of words but will Netflix just roll over and take it? Sorry to disappoint you but this is not in the streaming giant’s DNA!
Here is why Disney+ is no Netflix-slayer.
Netflix’s history is the perfect business school case study of corporate resilience. While the Reed Hastings-led firm may currently be the king of binge-watching, online video streaming was not how it got started. Initially, it rented out DVDs under a pay-per-use basis before it shifted to a subscription model.
After a decade during which it generated over a $1 billion annually in revenues, the firm introduced an online video-on-demand service. This was the right bet as streaming services are now more popular than pay TV in the U.S.
About half a decade after this, Netflix saw the risks of its overreliance on licensed content and started producing its own. It read the future well as some of the content owners such as Disney are planning to end content licensing agreements.
Netflix has been constantly adapting and changing with the times and there is no indication this will change. So while Walt Disney may have a larger global footprint and an unrivaled content-creation infrastructure, Netflix has a better track record of adapting to the changing tides.
From the beginning, the vision of Hastings was to drive growth using data. In online streaming, Netflix has mined vast amounts of user data relating to viewing habits, tastes and preferences. This is what has allowed Netflix to be so good at recommending content to users based on what specifically appeals to them. Currently, recommendations drive 80 percent of the content watched on Netflix.
To collect and collate such data on users takes time, an advantage Disney lacks or only has on a limited scale.
In 2017, Netflix spent approximately $8.9 billion on content. This rose to $12.04 billion last year. In 2019 Netflix’s content budget is expected to rise to $15 billion. Next year this could rise to $17.8 billion according to Wall Street analysts.
Per Disney’s CFO, Christine McCarthy, its upcoming streaming service will invest approximately $1 billion on original content in the first year. By 2024 the upcoming streaming service will spend a little over $2 billion on original content.
Part of the reason Disney’s investment in original content pales in comparison to that of Netflix is that it already has a huge library. This, however, does not diminish the fact that relatively speaking, it is an underinvestment. And this could just be what Netflix needs to keep growing its lead.
As an entrenched entertainment giant, The Walt Disney Company relies on box office takes and ratings with regards to the kind of content it backs. Netflix, however, has been more experimental and this has resulted in it funding films that mainstream firms would have given a pass but which went on to achieve great success on the platform. Adam Sandler movies are a case in point.
Going forward, expect Disney’s culture and heritage to continue informing its strategy for its upcoming streaming platform. While that is not a guarantee for failure, it’s certainly not the way to shape the future.
In an interview with CNBC after the launch details of Disney+ were revealed, Iger briefly praised Netflix for doing a ‘good job of creating brand value, and name value’. He then dismissed it as a firm that’s ‘still building their brand in many respects’.
While Disney is not in any present danger of getting overrun by upstarts, arrogance is not the way to go. When Netflix came on to the scene in 1998 offering to ship DVD home rentals, Blockbuster Video, then the largest video chain in the U.S., must have brushed off Netflix too. Well, we all know how that ended.
Last modified: July 2, 2020 7:33 PM UTC