Is Disney ready to lead the streaming services market? When the market share of streaming services starts revolving around content, Disney looks like it has everything set up to gain leadership over Netflix.
An increasingly crowded market
Back in 2011, when Netflix decided to detach its streaming service from its original DVD rental business, its strategy was focused on licensing deals with studios and cable channels in order provide the widest catalogue to customers at a bargain price. Netflix’s competitive advantage was almost entirely based on affordability and on the technological framework on which the service was built on, which empowered users with unprecedented flexibility in the way they accessed content.
However, as soon as competitors such as Amazon, Hulu and the streaming services offered by TV networks matched Netflix’s usability and price, the focus for differentiation shifted towards content. A bidding war for exclusivity deals for blockbuster productions followed, but these kinds of deals are temporary: they can be altered and ended and do not guarantee a sustainable competitive edge in the long run. This is why streaming companies have started focusing on original content, where they can control all licensing and distribution, making sure they are the only one to supply the product to end users.
Netflix said it will invest $8 billion next year to fund original productions such as hit series House of Cards and Stranger Things. The company also recently raised the price of its most popular subscriptions, possibly to help raise funds for this huge project.
Disney: a path marked by multi-billion acquisitions
Since CEO Bob Iger took over the company in 2005, Disney has based its success on huge acquisitions, starting with Pixar in 2006, bought for $7.4 billion, whose productions have generated staggering amounts at the box office, and was even more profitable in home video and merchandising sales.
Three years later, Disney acquired Marvel Entertainment for $4 billion. Aside from being about as successful as Pixar in terms of revenue generation, the incommensurate power of this acquisition lies in the fact that an intellectual property such as Marvel enables Disney to produce a virtually unlimited amount of content based on the same franchise, with tens of stories and characters ready to be adapted to the big screen.
The entertainment giant closed its last big deal in 2012, when it bought Lucasfilm for $4bn and announced 6 new chapters of the Star Wars franchise. The Force Awakens and The Last Jedi already generated a combined $3bn in box office revenue for the company, The Last Jedi will be out at the end of the year and the company just announced a new trilogy directed by Rian Johnson: everything suggests a huge return on investment for this acquisition as well.
Reportedly, Disney was also in talks to acquire most of 21st Century Fox, potentially gaining access to the rights for additional blockbuster titles and franchises, however this deal hasn’t yet progressed to a stage where we could estimate its profitability.
The best catalogue around
When, back in August, Disney announced the end of its licensing deal with Netflix, the streaming service’s stocks plummeted, as this would have meant a massive loss for Netflix’s catalogue. Disney later announced that it was going to launch its own streaming service, with exclusive distribution of its own blockbuster titles.
Since then, everyone has been speculating about Disney’s future. Some say that Netflix’s trendsetting strategy of original content production cannot be easily beaten, as other studios wouldn’t be able to keep up with the changing tastes of the younger audience in the same way Netflix does.
Arguably, though, thanks to its new streaming platform, Disney would be able to exploit its intellectual properties in a way that no other company could. Their diversified network of record-breaking-box-office films, home video and streaming distribution, merchandise stores and theme park would allow them to keep a wide segment of users consuming entertainment in all forms and tastes, but always under the Disney company umbrella.
Last but not least, the catalogue/price ratio. With Netflix raising prices while being deprived of some of its most popular titles, while Disney prepares a catalogue with the most popular blockbuster franchises ever at an even lower price, it looks like equilibrium within the industry is on the brink of a drastic power shift in favour of Disney.