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The launch of Disney+ heralds a Tipping Point for the Entertainment Industry

The launch of Disney+ in November 2019 heralds a new era, not only for Disney, but for the entire entertainment industry. It accelerates the inevitable shifts in the industry that has resulted from the digitalisation of content delivery.

With the launch of its streaming service, Disney is now in the game to be a direct-to-consumer brand, with immediate access to data and customer relationships.

In recent years, Disney has dominated the industry in terms of market share, box office blockbusters, revenues and profits. Disney represents the best in breed of the traditional entertainment economy, where studios relentlessly monetised top-of-the-range franchises through content licensing, (theatrical or non-theatrical) distribution and merchandising.

Yet, even Disney faces declining year-on-year revenue, driven by macro trends of consumer-led cord cutting and declining audiences of cable TV globally. In the last quarter, group profits of $785m were down 66 per cent from a year ago. 

Disney could have rested on its laurels but to its credit, it has shown foresight. Unlike industry leaders of past who were relegated to irrelevance when they failed to reinvent themselves in the face of change, e.g. IBM in computer hardware and Kodak in consumer photography, Disney realises that it has to go through an extremely painful and costly transition, in the short term, to avoid an even costlier fate in the long term.

Disney+ is their strategic play in the long game, taking on the likes of Netflix and Amazon on their home ground. While Disney+ is seen as one of the most credible challengers to Netflix, it definitely has its work cut out.

Challenges Disney+ Will Face

By pitting itself against Netflix’s head start of 158 million subscribers, Disney will require a massive investment, specifically in a type of marketing that it has no history of executing (Digital customer acquisition & retention).

Additionally, Disney is also foregoing about 4.5 billion dollars of PROFIT a year from licensing its content to other platforms. This is a huge ticket bet that its investors have to have the patience for, (or not).

It’s true that Disney and Fox collectively have one of the most bankable back catalogues in the industry. But whether back catalogue is a powerful enough driver to acquire new subscribers  remains to be seen. In fact, Disney now has to go toe-to-toe against Netflix’s $15 billion a year rate of investment in new content acquisition. 

In a consumer-driven market that favours VOD, Netflix dominates the market share of SVOD revenue with a subscriber base of 150 million. Despite an impressive subscriber base, Netflix has yet to turn a profit. Whilst Disney forecasts its streaming service to be profitable in 2024 with a subscriber base of 90 million. Only time will tell how this forecast will play out.

In coming months, competition for subscribers will get even stiffer with other well-backed entrants launching their streaming services, such as AT&T’s Warner/HBO Max and NBCU’s Peacock. 

With non-traditional, digitally-savvy players like Apple TV+ entering the fray, (given away to boost hardware sales) & we’ll have to wait to see what Google or Facebook will do in the next 18 months.

The Obvious Winners & Losers

It’s too early to tell who will get ahead in the streaming wars but some things are certain. Audiences are the obvious winners, benefiting from a plethora of content choices at lower prices. Filmmakers, Producers and Studios that create compelling original content will also stand to gain from the surge in demand for content. Undoubtedly, the decline of linear businesses will accelerate as major players pour investment into VOD propositions & pull their content from older linear providers.

As Charles Dawin’s quote goes “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.” let’s see how this plays out in the entertainment jungle.


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