The Walt Disney Co. (DIS, Financial) made a big splash in the world of streaming content with the launch of Disney+ on Nov 12, 2019. With 10 million subscribers signed up the first day, and another million joining every day, the initial rollout was an unquestionable triumph. Disney+ joins Disney’s other streaming offerings, Hulu and ESPN+, with its vast and popular library of wholly-owned content.
The big debut of Disney+ has had the financial media in a buzz. Last month, CNBC interviewed John Malone, chairman of Liberty Media Corp., about Disney’s place within the burgeoning streaming ecosystem. According to the legendary telecoms billionaire, Disney is well placed for big success.
Enacting a clear vision
Many companies have been jumping into the streaming business in recent years, with many more soon to come online. Even the biggest names in tech have muscled in on the action, with Amazon.com Inc. (AMZN, Financial) investing heavily in its Prime Video service and Apple Inc. (AAPL, Financial) building its AppleTV offerings.
With so many offerings incoming, however, it is only natural to wonder whether all can thrive, or even survive in the long-term. According to John Malone, Disney has nothing to worry about on that score:
“I have no question that Disney will be successful with this. The quality of their content the strength of their brand, and frankly, the quality of the management. They’ve got their eye on something three, four, five years out. And, in the end, I think they will be quite successful. Bob [Iger] is all in on this. They have a very clear vision of where the future is.”
Sometimes companies jump into new technologies without clear strategies because they feel they have to do so in order to remain relevant. Clearly, Disney views streaming as a vital future outlet for its content, but that realization did not spark the panicked rollout of a half-baked product. Instead, under the stewardship of CEO Bob Iger, Disney has followed a carefully crafted playbook.
Disney boasts a vast library of intellectual property, one that is arguably the most valuable in the world, as well as the skills and resources to continue growing and refreshing its content. That is a profound advantage that will ensure a strong market for Disney+, irrespective of platform saturation across the marketplace.
Adapting to a changing media ecosystem
The meteoric rise of streaming media took many legacy media providers by surprise. Even now, most seem to be on the back foot. As Malone opined to CNBC, direct-to-consumer relationships are here to stay:
“If you have a direct-to-consumer relationship, with scale, with growth, and you have pricing power...it’s pretty powerful. It’s a very powerful business model.”
Disney clearly understands the power of the streaming business model and is betting big on being a key player in the space. Disney+ is just one prong of Disney’s overarching streaming media strategy. Another key component it is working to develop is its sports streaming service, ESPN+. As I discussed in a previous article for GuruFocus, Disney appears to be making a strong play to own sports entertainment in the age of streaming.
Disney’s traditional cable and subscription television offerings have suffered in recent years, as consumers increasingly opt to “cut the cord” and abandon expensive cable packages. According to Malone, a push into streaming is indicative of Disney’s recognition that its legacy cable-based sports business model will not last forever:
“They’ve gotten beat up for a number of years due to the cord cutters dropping ESPN. They think it’s inevitable they will need to go to direct-to-consumer relationships.”
Sports rights have been a critical differentiator for cable package providers for years, but it is proving increasingly insufficient to keep subscribers onboard. Streaming offerings will need to adapt to a world in which live sports are increasingly streamed, rather than broadcasted on television. That presents a number of technical challenges, since live content streaming is a different technical proposition to library content streaming. Disney has been working to build its capabilities on this front. In 2017, it secured a majority stake in BAMTech, a leader in live-stream technology. In April 2019, BAMTech was renamed Disney Streaming Services.
Verdict
Disney is making a big play in streaming, one that has been carefully planned and – thus far – meticulously executed. Ultimately, it is hard to find any fault with Malone’s assessment of Disney’s streaming prospects.
Disney is not aiming to become the dominant force in the space, instead focusing on its core strengths in intellectual property and sports rights. Instead of trying to reinvent the wheel, or be all things to all consumers, Disney can focus on developing its powerful media assets into the next great content dissemination channel.
Disclosure: Author is long Disney.
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