How Disney+ is winning the streaming wars
Ever since Netflix stormed our living rooms, the world’s biggest TV and movie studios have been scrambling to build streaming competitors of their own.
Here, we look at how one of the world’s oldest studio businesses leveraged its unique advantages to build the fastest growing streaming service ever – and what it needs to do now to build profitability.
A long time ago…
Netflix launched its online streaming service in 2010, disrupting the on-demand content market and redefining our relationship with the small screen.
Over the next decade, Netflix expanded into original content production, winning Oscars and BAFTAs along the way. But its domination of the market has started to deteriorate as pre-streaming content companies have entered the space.
Today, the streaming market is accelerating towards saturation point, and with wider economic pressures, the major players are focusing less on subscriber counts, and more on their bottom line.
More than any other streaming brand, Disney+ appears to be ahead of the pack in terms of its ability to develop and execute a strategy that meets the challenge of a crowded market.
A big entrance
Disney+’s rise to prominence has been nothing short of meteoric. At its launch in November 2019, the streaming platform surpassed 10 million subscribers in 24 hours; that number has grown consistently, peaking at 152.1 million subscribers during Q3 2022. That figure is equivalent to Netflix’s reduced forecast for 2024.
Disney+ has arguably the most beloved movie back catalogue in history, but it launched with an original piece of content, derived from the Star Wars series (Lucasfilm). The Mandalorian was a huge success, becoming the most in-demand series in the world, 31.9 times more in demand than any other title).
Disney+ offered high-quality blockbuster film premieres, such as Mulan, and, while at launch it had a much smaller library than rivals Amazon and Netflix, it worked with Pixar, Lucasfilm and Marvel to develop tent-pole titles.
Working with these partners has helped Disney+ develop broad family and non-family appeal – over 50% of subscribers don’t have children – and with a wide range of content its appeal spans male and female, and multiple demographics and age groups.
Old strengths, new talent
As one of the world’s most treasured entertainment brands, Disney had enormous advantages to work with. But the business was stepping into a whole new world of content delivery. Complacency was not an option. The company set about finding the capabilities needed to develop its new business model.
After it acquired BAMTech Media, a global leader in delivering direct-to-consumer live and on-demand video at scale, in 2017, the company began to develop two subscription streaming services: Disney+ and its sister platform, the sports-oriented service, ESPN+.
Michael Paull, CEO, BAMTech Media
BAMTech Media’s CEO, Michael Paull, who had previously spent five years as vice president of Prime Video at Amazon, was tasked with overseeing the launch of the two streaming platforms.
The strategy focused on consumer and ‘lean-startup’ techniques to help manage the risk and uncertainty of entering an unfamiliar market. These techniques aim to optimise method development and avoid wasting time and resources in product development by launching prototypes – minimum viable products (MVPs) – to validate or invalidate hypotheses about the market.
In Disney’s case, it trialled the big launch of Disney+ by first launching ESPN+ in 2018, to obtain usage data and fix app bugs. The company also offered a bundle at launch, where US-based users could subscribe to ESPN+, Hulu and Disney+ together at a discounted rate.
Building for scale
Disney+ was developed with scalability at its core, using BAMTech’s already-built platform on which to release its content. The company developed the technology to launch on every device possible, including game consoles and mobile devices, making the service available to all consumers on all devices.
It staggered its global expansion by region, first launching in the US, Canada, Australia, New Zealand and the Netherlands in 2019, before expanding into the UK, Italy, Germany, Spain, Austria and Switzerland in 2020.
This meant localising the service through language, currency, local payment mechanisms and marketing activities.
Knowing that its biggest competitive advantage was its content library, Disney+ released its back catalogue gradually, on a weekly basis (see figure 1). This ‘drip-feeding’ of content meant Disney avoided diluting the value of its content by releasing it all at once, and meant that consumers felt like something ‘new’ or of value was always about to be released. For older viewers, the novelty was rediscovering the classics; for younger viewers it was discovering these for the first time.
Figure 1: The number of pieces of Disney+ content at launch and at year one.
Putting the + in Disney
Michael Paull was crucial in establishing a foothold in the subscription video-on-demand (SVoD) market, but to satisfy shareholders, Disney+ needed to deliver profits.
Despite its wealth of subscribers, the streaming service has been operating at a loss since its launch (see figure 2).
Figure 2: Disney’s direct-to-consumer revenue and operating income.
As Chair of Disney Media and Entertainment Distribution, Kareem Daniel decides where new Disney content gets released. Daniel has implemented various strategies to increase profitability, including:
Releasing certain films exclusively on Disney+ or using a hybrid option where users can pay an additional fee to watch the films on Disney+ instead of going to cinemas.
A 37% price hike for December 2022.
Launching an ad-supported subscription tier in December 2022 at the current Disney+ price, to lessen the blow of the above price increase.
Continuing to spend heavily on content to ensure subscriber retention.
Kareem Daniel, Chair, Disney Media and Entertainment Distribution
Under Daniel’s direction, Disney is taking proactive steps down the road to profitability. But is it working? In the company’s latest Q3 earnings report, it told its shareholders that direct-to-consumer revenue increased 19% to $5.1 billion, while the operating loss increased from $800 million to $1.1 billion, citing Disney+ as the leading cause of this loss increase.
This was due to “higher programming and production, technology and marketing costs…” due to more content being provided on the service. However, these losses were partially offset by increases in subscription revenue.
Meanwhile, Netflix reported quarterly profits of $1.4 billion in its latest financial report.
Recalibrating for a downturn
With a change in the macro-economic headwinds and a cost-of-living crisis, the streamers have been taking a hit.
Disney recently announced that it’s adjusting its 2024 subscriber forecast down from 230–260 million to 130–165 million. And this news falls in line with trends across the streaming industry.
Netflix, the market leader, reported its first-ever quarterly subscriber losses in 2022 and is busy cutting costs. The mantra currently echoing around Netflix’s headquarters is, “bigger, better, fewer”, a directive for its film executives who will be expected to streamline output.
A reduction in content output will also lessen the need for executives (according to one insider, the company is “overstaffed” with them).
Big event films will be produced to drive growth, and Co-CEO Ted Sarandos recently singled out The Gray Man – a $200 million-budget blockbuster starring Ryan Reynolds and Chris Evans – as being part of a content slate that is “better and more impactful than it was in ’21”.
Warner Brothers is also focusing on cost-cutting by consolidating HBO and Discovery+.
All change
Disney has recently made another big move to secure its future. On November 20th, Disney announced the return of Bob Iger, who ran the company for 15 years until 2020, to the role of CEO. Iger replaces Bob Chapek, who was in the job for less than three years. Iger has previously been credited with transforming Disney’s fortunes, and was at the helm during the company’s acquisitions of LucasFilm, Pixar and Marvel, so his return further signals Disney’s response to a changing market and the transition of its focus from growth to profitability. Disney has brought Iger back to finish what he started, and reignite the magic.
Learnings from a rising star
While the jury’s still out on who will prevail as the streaming market matures, the Disney+ story provides a textbook example of how established players can fight back against disruptors in a highly competitive market.
Use your advantage
As the foundation for its strategy, Disney focused on its core competitive advantage: its unique and much-loved content library and reputation across generations of movie goers. When you have new business models, are you clear on what your own unfair advantages are?
Build capability
Disney recognised that it needed to develop additional capabilities and expertise in delivering online content and working within a business model that focuses on subscriptions as opposed to ticket sales. Disney did this through an intelligent combination of smart acquisitions and leadership hires. Do you have the right people and capabilities to build the next big thing, or do you need to look for outside help?
Adopt lean-startup techniques
Disney adopted strategies used by entrepreneurs by using the launch of ESPN+ as an MVP, scooping up data and insights to learn about its consumers, the tech and the market. What are the lean experiments you can run before making a big bet?
Be prepared to blitzscale
Blitzscaling is a highly risky strategy defined by Reid Hoffman, founder of LinkedIn. It refers to making a big investment in revenue growth and market share at the expense of profitability. It is only appropriate in ‘winner takes all’ markets where there is an assumption that there is very limited room for competitors, and a land-grab strategy is required. The jury is still out as to whether this strategy will work for Disney, especially as it is not for the faint-hearted. The recent replacement of the company’s CEO may indicate that this was a risk too far for Disney.
Continue adapting as the market changes
As the market trends downwards, Disney has responded by turning its focus from growth to profitability and showing it’s not afraid to make some drastic changes, including the immediate replacement of its CEO with Disney titan Bob Iger.
There is increasing recognition that as the streaming market matures, it’s not going to be as profitable as it once was. Households have a limited budget available for subscriptions, particularly as the cost of living crisis deepens, so streaming services are lowering their prices. However, there is a limit to how far these prices can come down, and the competitor with the lowest cost structure always wins a race to the bottom. In the battle for streaming success, the only other basis for differentiation is content quality, and Disney+ has successfully regained its decade-long reputation for delivering the content users want.