Disney Enters Streaming Space: Can it Disrupt the Disruptor?
| Case Code: BSTR564 Case Length: 16 Pages Period: 2017-2018 Pub Date: 2019 Teaching Note: Available |
Price: Rs.400 Organization: The Walt Disney Company Industry: Media & Entertainment company Countries: America Themes: Digital Business Strategy, New Market Disruption, Strategic Alliances, Competitive Strategy, Mergers & Acquisition, |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Global OTT market
Unhappy with high prices and subpar customer service, millions of Americans stopped using cable TV in 2016, opting instead for a growing number of streaming services, which offered lower prices and a competitive channel lineup over the internet. Streaming platforms such as Netflix, offered on-demand content to viewers at lower rates, at about US$7-11 per month compared to US$60-100 or more for a monthly pay-TV subscription. Pay-TV providers in the US – cable, satellite, and telco TV operators – lost about 1.9 million subscribers in 2016, according to media research and analysis firm Kagan Research. At the same time, the streaming services market, also known as OTT, kept growing at their expense. The number of OTT-only homes in the US tripled from just over 5 million in 2013 to 14.1 million in 2017, according to a report from the Video Advertising Bureau (See Exhibit II). The four major OTT streaming services – Netflix, Hulu, YouTube, and Amazon – accounted for nearly 80% of OTT viewing time for OTT households as of April 2017, with Netflix alone accounting for 40%..
Disney’s move into streaming
In 2017, a total of 22.2 million US adults stopped using cable, satellite, or telco TV services – up 33% from 16.7 million in 2016 (See Exhibit V and VI). As consumers continued to desert cable in favour of OTT services, Disney realized it was time to wake up and adapt to the changing entertainment landscape. The fact that the number of cord cutters was growing by the year was worrying for Disney, ..
Dumps Netflix
In 2016, Netflix entered into a licensing agreement with Disney, whereby it started airing Disney movies exclusively for American users. Netflix customers were able to stream a catalog of titles from Disney and four of its subsidiaries: Walt Disney Animation Studios, Pixar, Marvel, and Disneynature..
Fox in the mouse house
Disney’s pursuit of 21st Century Fox (Fox) began in August 2017 when Iger met Rupert Murdoch (Murdoch), the founder of Fox, and discussed the myriad challenges their respective businesses faced. Murdoch decided to sell a part of his empire as he felt that his corporation was not big enough to face the coming challenges to the media industry and compete with tech giants known collectively as ‘FAANG’ (Facebook, Amazon, Apple, Netflix, Google) that were upending the movie and television distribution oligopoly of which Fox had once been a central player..
Implications of the merger
Industry observers called the Disney-Fox merger “seismic” and globally “game-changing” as two of the biggest media and entertainment companies in the world together would “form an octopian beast whose tentacles will touch every corner of the content and distribution universe.” The resulting conglomerate would control about 40% of the movie and television franchises in the US. According to analysts, the acquisition would allow Disney to create more appealing and strong content, build more direct relationships with consumers globally, and compete with tech rivals including Netflix and Amazon —something neither Disney nor Fox could do on its own..
Competing with Netflix
According to some analysts, Disney’s move to the streaming would “arguably reduce the consumer value of Netflix” as Disney was a vital piece of Netflix’s movie strategy that performed well. They pointed out that Disney’s larger library of content and distribution capabilities posed a competitive threat to Netflix..
Challenges
Critics pointed out that the streaming business had its own challenges and Disney had not proven any core competency yet in this space compared to its rivals. The company’s streaming technology, customer service and marketing had yet to be tested, they added. “This is particularly key for a legacy organisation like Disney, as it will always have its golden era of television dominance as a benchmark – a dominance that still contributes a significant amount towards its profits. While it certainly has a responsibility to create as much value as possible, becoming a full stack streaming business is very different to being a content production house,” said Bola Awoniyi, a Digital Consultant at Econsultancy..
Looking ahead
In its third fiscal quarter ended June 30, 2018, Disney’s revenue was US$15.23 billion. Media Networks’ revenues for the quarter increased 5% to US$6.2 billion (See Exhibits XIV and XV). During the company’s earnings call, Iger said that Disney’s first ever DTC service ESPN+, launched in April 2018, had exceeded expectations. “The product is working well technologically, it’s quite stable from a streaming perspective..
Exhibits
Exhibit I:Disney Media Empire
Exhibit II: OTT-Only Household Trend
Exhibit III: Share (%) of Total OTT Viewing Hours
Exhibit IV: US OTT Video Service Users and Connected TV Users
Exhibit V: US Pay TV Nonviewers, by Type, 2016-2021
Exhibit VI: US Pay-TV Subscriber Losses, 2014-2017
Exhibit VII: Select Streaming Video Services
Exhibit VIII: Rupert Murdoch’s Business Empire
Exhibit IX: Disney-Fox Brand Mashup
Exhibit X: Disney Vs. Netflix: Market Cap Comparison
Exhibit XI: Netflix Key Financials
Exhibit XII: US Over-the-Top (OTT) Video Service Users, by Service Provider, 2015-2020
Exhibit XIII: Select Over-the-Top (OTT) Video Service Users, by Service Provider, 2015-2020
Exhibit XIV: Disney Segment Operating Results for Fiscal 2018 and 2017
Exhibit XV: Disney Media Networks Results (in millions of US Dollars)
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