Disney Investor Day: 7 Company Strategies Resulting In 10 Major Industry Implications

Disney
DIS
announced a dizzying amount of news at its four-hour long December 10, 2020 Investor Day. It outlined 7 strategies for 2021, by my count, that will change the future of the entertainment industry forever. There is a lot to digest, including an abundance of new shows and movies, but I’m keeping this column at the 30,000-foot strategic level.

The 7 Disney Strategies

1.    Disney reaffirmed that the Direct-to-Consumer division will be a corporate priority over theatrical. This is reinforced with an updated, impressive total of 137 million subscribers as of December 2, 2020 across all platforms (Disney+
DIS
with 86.8 million, Hulu with 38.8 million, and ESPN+ with 11.5 million), and a projected 300-350 million subscribers by 2024 (Disney+ with 230-260 million, Hulu with 50-60 million, ESPN+ with 20-30 million). The Direct-to-Consumer division already hit $16.9 billion in revenue in Disney’s yearend 2020 financial report, thus eclipsing the studio’s 2019 pre-COVID revenue of $11.1 billion. There is no going back.

2.  Disney’s distribution strategy is on target and expanding rapidly. Disney+ has been a success wherever it launched. The earlier alliance with platforms like Roku and Amazon
AMZN
Fire helped Disney+ become available for most U.S. Households. They are now expanding distribution via a deal with Comcast
CMCSA
, an updated Verizon
VZ
promotion, and a Star and Star+ strategy to expand across the Indian market where a growing middle class has significant disposable income. It is also making a sizable thrust into the Latin market and creating a distribution deal with a Disney+ inclusion in Fortnite.

3.  Disney intends to ratchet up premium content. The company revealed over 100 new pieces of content that are designed to offer “highly curated…juicy” shows and films using proven showrunners, filmmakers and “A” list talent. The strategy is to hit all “four quadrants” (male, female, young and old, inclusive of parents and non-parents). Disney now projects that by 2024 it will spend between $14-16 billion in content across all Direct-to-Consumer divisions. The upcoming content will include 10 new Marvel series, 10 new Star Wars series, and 15 new Disney Animation, live action and Pixar series and features. Stories in selected TV series will be connected to stories in film releases, enticing audiences to experience both in order to achieve the full narrative – synergistic storytelling! New content will also be available via FX on Hulu (e.g. an Alien series), and ESPN+ (e.g. Man in the Arena – a nine-part docu-series). It will also include content from Star and Star+. You can find more content here.

4.  Now that Disney has proven its worth, it is increasing the price. Disney+ will increase from $6.99 to $7.99 in the U.S. in March and from €6.99 to €8.99 in Europe. Its new price is still well below competitive offerings, and so added price hikes can be expected in the future. With expanded subscribers and price hikes, Disney expects Disney+ to achieve a profit by 2024, whereas Hulu and ESPN+ are projected to achieve profitability by 2023.

5.  Disney is pursing both subscriber growth and Ad revenue. This is relevant for Ad supported platforms Hulu and ESPN+. This will help ease the pain as Ad supported content in legacy networks eventually declines.

6.  Disney is expanding its synergy across platforms: Just as Disney provided a bundle of Disney+, ESPN and Hulu, ABC News will be accessible via Hulu. This will cross promote interest and viewership. It is one peek at the underlining synergistic opportunities.

7.   Disney now has a basic film launch plan: 80% of the new content will launch via Direct-to-Consumer. For film considerations, there appears to be 4 basic launch options at the company’s disposal, though the company seemed a bit vague on specifics. Disney stressed the need for flexibility to take into account the changing dynamics of COVID-19 and consumer behavior. We can assume that the bigger the box office potential and visual effects, the more likely the film will be launched in theaters.

—Theatrical 1st: This movie launches theatrically first and afterwards it will be provided free on a company-owned streaming service for subscribers (e.g. Frozen 2).

—Simultaneous (aka Day-and-Date): This movie launches simultaneously in theaters and on a company-owned streaming service for a Premiere Access fee (e.g. Raya and the Last Dragon, planned for March 5, 2021).

—Direct to Streaming for Free: This movie bypasses theaters and launches directly on a company-owned streaming service at no extra charge (e.g. Soul).

—Direct to Streaming for a Premiere Access Fee: This movie bypasses theaters and is available for a Premium Access fee on a company-owned streaming service. Disney did not appear to mention this specific route, but it seems plausible given the experience of Trolls World and Mulan.

The 10 Major Industry Implications for 2021 and beyond

Though Disney did not detail the implications of its decisions for the broader industry, they are plentiful given the company’s size and scope.

1.    Linear, legacy units like ABC, NBC and CBS
VIAC
will lose resources to streaming divisions. Money, talent, staff, employment opportunities, and production will flow toward streaming. Legacy units may be starved for resources.

2.   The rise of streaming will result in an accelerated decline of network viewers and cable subscribers, leading to a corresponding fall in TV ratings. Oddly, while TV ratings will decline, Ad rates may rise in the short-term because declining ratings often drives up the cost of reaching the audiences that remain. But long-term, Ad rates for shows on traditional networks may fall as streaming options that are Ad supported gain a wider audience and become more cost efficient. 

3.   Giant entertainment companies will continue to spend heavily on premium content. This will raise the demand and price of prominent showrunners and filmmakers, which in turn will raise the price of production. Interconnected narratives that cross film and television storytelling will also increase expense. Streaming divisions within traditional studios will continue to lose money in the short-term but will look for subscriber growth to achieve breakeven. The desire to increase subscriber fees will be great – as Disney indicated with its price increases.  

4.   Entertainment companies will continue to horde their unique content in order to justify subscription fees. Smaller studios may get gobbled up (e.g. Lionsgate) to feed another studio’s library. Studio analytics will switch from maximizing box office and downstream revenues (e.g. dvd, licensing) to maximizing the lifetime value of a subscriber. Studios without a competitive streaming service (e.g. Sony Pictures) will have a unique niche by licensing their content to all others.

5.   Studios will have an unprecedented method to target unique audiences with unique content, messages, and other offerings. As more audiences adopt streaming, it allows traditional studios to understand specific preferences of individuals and to offer highly specific content and messages, something Netflix
NFLX
and Amazon Prime already do. Importantly, it can allow traditional studios to optimize synergy by selling tailored merchandise, theme park experiences, and other divisional offerings. This may accelerate the decline in big box retail stores. At the same time, consumer privacy concerns are apt to be voiced by consumer groups and governmental policymakers that are uncomfortable with the amount of personal data companies will capture. 

6.   The streaming effort to penetrate foreign markets will dominate. This is because penetration in foreign markets is lower than in the saturated U.S. market. Content created for specific countries will be given a priority, and demand for local stories, talent and production will rise…increasing production costs along with it. At the same time, U.S. consumers have become more accustom to foreign films with subtitles, most notably with the success of the South Korean film Parasite and the 2017 Spanish television series Money Heist. This may result in more foreign films coming to the domestic market.

7.    Audience shifting behavior will continue to reshape the entertainment marketplace. This was already apparent in their rejection of cable, embrace of streaming, and the use of multiple devices. Due to COVID, many who have successfully worked from home may desire to continue to do so even after the coronavirus is gone. If so, entertainment viewing may become more of an “anytime” affair as employees mix work and entertainment rather than using the more traditional schedule in which work is 9-to-5 and entertainment begins afterwards. 

8.   Theater chains are apt to fail with AMC leading the way. They are collateral damage as studios create a new model to optimize streaming revenue. As one or more theater chains enter bankruptcy, studios might prop them up with an investment to protect their theatrical window, while Netflix or Amazon might invest to gain an added distribution path. If one jumps in, others may follow. Theater chains that remain will contract in influence and size, and the number of locations will likely fall. If theaters exit malls it will put added strain on mall operators and their remaining tenants, showing the ripple effect of the decline.

9.   The Academy of Motion Picture Arts and Sciences may, begrudgingly, consider changing its policy and accept films for Oscar nomination that were never shown in theaters. It approved this for 2021 award season due to COVID-19 but only for films that had a previously planned a 2020 theatrical release. But with the explosion of quality films on the streaming platform, it will be harder and harder for the Academy not to bend, especially since prominent filmmakers have now rushed toward the streaming marketplace (e.g. Martin Scorsese’s The Irishman for Netflix)

10.In a tangent to Disney’s efforts, shows that blend content and interactivity will grow. Videogames have a long history of blending cinematic scenes with gaming to enhance the overall experience. Studios are likely to experiment with blending, most notably by Netflix’s successful film, Bandersnatch. Showrunners who have experience with both mediums will be in demand.

Disney’s Investor Day reveal rock-solid strategies. The implications for the broader industry are even more profound.