Disney Gets Ready to Stream the Magic Kingdom

Making a play for streaming TV's direct-to-consumer business model, and its cord-cutting customers? It's about to be part of a real Mickey Mouse operation.

Disturbance at the Mouse House: Disney hopes to bite into Netflix's streaming business with two streaming services of its own, starting next year. If they build it, will you come? Disneyland fireworks, March 2017 by Michael James: You Tube (https://www.youtube.com/watch?v=HYEIjutZQUs)

Technology has blown a hole in the traditional entertainment business model. That’s been true for some time — at least since 2007 when Netflix vastly reduced its position in the DVD rental business and committed to streaming content directly to consumers. Now, Disney, the whale in the waters of entertainment content, has announced plans to get into the streaming game.

Disney announced on August 8 that it’s planning to start two streaming services: one, aimed at sports fans and capitalizing on the ESPN brand, will launch in early 2018. The other, geared toward Disney’s legions of entertainment fans hungry for its vast movie library, is set to kick off sometime in 2019.

It’s clearly a move intended to “take it to the people” — to put entertainment content directly into the hands of consumers, bypassing cable providers and streaming giants in the process. Disney tiptoed up to this line before, in early 2014, with its Disney Movies Anywhere service, in which you bought a Disney title once and were free to watch it on any web-capable device.

The new streaming strategy is risky for Disney, and only some of it may be navigable at this early stage. No price for the prospective new services has been revealed yet, for example, so it’s anyone’s guess whether the cost of Disney streaming services will be competitive with Netflix. Safely assuming it will be, though, other risks remain for streaming the goodies in the Mouse House.

◊ ◊ ◊

ESPN, Disney’s celebrated sports network, has been in deepening economic trouble for several quarters now. In August 2015, Disney chairman and CEO Robert Iger acknowledged “some subscriber losses” at the sports channel — a phrase indicating a mastery of understatement. The truth is a bit more concerning for Disney shareholders.

In 2013, ESPN had 99 million subscribers, an empire upon an empire in sports television. Disney's 10-K statement filed with the U.S. Securities and Exchange Commission late in 2016 shows it lost 9 million of those subscribers since 2013. 

Reports last year from ratings monitor Nielsen said ESPN lost 621,000 customers between October and November 2016. A month later, Nielsen released a fresher estimate that showed another 555,000 subscribers jumped ship between November and December. (Both events were reported in Philly.com, the website of the Philadelphia Inquirer, among other sources.)

“Subscriber losses”? The phrase Iger really wanted was “subscriber hemorrhaging.” There may have been no way to staunch this bleeding without taking drastic measures. In December, media analysts floated the idea that Disney should sell ESPN altogether to make for a leaner, meaner company; to give investors a better grasp of Disney’s overall profit picture; and to free up cash for other company divisions.

What might have been a novel idea to pursue is now apparently off the table. Iger’s bet on ESPN content in a streaming service clearly says ESPN is off the market.

◊ ◊ ◊

Given that a rationale for Disney’s action is to realize cost savings by taking content directly to consumers, one big question is, will Disney make up in subscription revenue what it needs to offset the money it stands to lose as more people cut the cord — to say nothing of what it’s been losing with ESPN?

Even when Disney streams ESPN assets, people may not necessarily come. Disney says the planned ESPN streaming service will feature National Hockey League and Major League Baseball games — a sound move. But incredibly, Disney says that the ESPN streaming service won’t include the channel’s regular content, and says that Monday Night Football and NBA basketball games won’t be part of it either.

If MLB and NHL games are already available on other streaming outlets or cable (and they are); if ESPN’s top-tier personalities and flagship programming won’t be on the streaming service, what’s the incentive for customers to show up — and come back? If they can’t get the best of what makes ESPN ESPN … what’s the point?

◊ ◊ ◊

The other streaming service Disney plans, aimed more generally at movie fans, looks to have more traction, and be more of a head-to-head match with Netflix. Movies are, after all, Disney’s multi-generational bread and butter, and a streaming service that gives consumers the same easy access to movies as they get with Netflix just makes sense in a cord-cutting world. But even that may be undercut by the realities of business between both companies.

After the August 8 announcement, Netflix released a statement saying U.S. subscribers “will have access to Disney films on the service through the end of 2019, including all new films that are shown theatrically through the end of 2018.” In short, thanks to already established contracts, it'll likely be a short-term bite in the ass for Disney, which faces the exasperating prospect of launching a streaming service to showcase its own content … only to have to share that content, at least briefly, with the same streaming rival Disney’s trying to take down.

Disney outspends Netflix for content by a commanding margin — what you’d expect for an entertainment company more than four times older than Netflix. But Netflix’s rate of content spending grows every year; it's about $6 billion this year. Netflix is smaller, more structurally agile than Disney. Unlike Disney, Netflix doesn’t have to pay for parks, resorts, cruise lines, broadcast stations, vast acres of studios, and infrastructure costs of keeping those things up and running decade after decade. After decade.

And anyway, Disney comes years late to streaming, a mode of content access that thins the herd from time to time: NBCUniversal’s Seeso comedy streaming service, launched in early 2016, announced on May 9 that the service will be shut down by the end of the year.

◊ ◊ ◊

Disney’s move may be purely a defensive one, as one analyst suggested to the Los Angeles Times, but that doesn’t make it a bad one. Lee Burke, president of LHB Sports, Media & Entertainment told The Times: “It was almost mandatory that ESPN had to do something like this… streaming is where the growth is and it’s where the next generation of viewers are increasingly heading.”

Some have called Disney’s move a game-changer, but it’s more likely to be a game-confirmer than anything else. Disney entering the streaming picture doesn’t change the game, it just makes clear how many players are already at the table — and how high the stakes are for a latecomer who goes all-in with the first hands he plays.

One of Disney’s iconic entertainments — the 1928 cartoon “Steamboat Willie” — opens with Mickey Mouse at the helm of a paddle boat on a river, merrily playing the waters without a care in the world. Fast forward almost 90 years: Disney the company has turned into an ocean liner, powerful, ubiquitous, and way too big to turn on a dime. Time will tell how nimbly, and how soon, it navigates uncharted waters in a new media ecosystem. 

Michael Eric Ross
Michael Eric Ross

Author and journalist Michael Eric Ross contributes to Medium. His writing has also appeared in PopMatters, The New York Times, Wired, Entertainment Weekly, Salon, The Root, msnbc.com, BuzzFeed and other publications.

Now Reading
Disney Gets Ready to Stream the Magic Kingdom