Disney announced it would launch a kids SVOD service in 2019 and a sports service under the ESPN brand in 2018. Particularly the kid’s service will be very late to market. Does it stand any chance of success?
Chapter 1: What Disney announced (1:50)
Disney announced three things in association with its fiscal Q3 earnings announcements:
- Acquisition of a controlling interest in BAMTech for $1.58 billion
- Launch of an ESPN-branded multi-sport video streaming service in early 2018
- Delivery of a direct-to-consumer (DTC) SVOD service in 2019.
The SVOD service will be the exclusive home for new Disney and Pixar movie releases beyond 2018 and will host an extensive library of movies and shows from those brands including Disney Channel. Disney will not renew its existing distribution agreement with Netflix, which ends in 2018.
The ESPN service will draw on content from MLB, NHL, MLS, and others, but will not include NFL.
Chapter 2: The kids SVOD service (3:00)
Will walks us through the history of Disney movies on Netflix. It started with a Starz agreement in 2008 and ended with the 2012 agreement between Disney and Netflix which saw Disney movies appear on Netflix in 2016. Disney will not renew the deal with Netflix. Instead, it will launch its service in 2019. He thinks this is too late and shows how Disney trade short term revenue for the long-term strategic position. The trade, he thinks, was a very bad one.
Chapter 3: Netflix and others have time to grow (8:40)
The long delay in Disney launching its own SVOD kids service gives Netflix and others plenty of time to adjust and continue to grow. Despite the delay, however, I think if Disney prices the product properly it will still be an important service. After all, Disney movies have been kid staples for decades.
Will thinks Disney may price the service too high. I think the company will be constrained by the dominant SVOD kid services at the time of launch. Simply, if they launch at $20 a month, few will sign up.
Chapter 4: Disney constrained by traditional TV business (12:40)
Disney says it will balance the service against existing revenue sources, like TV. That means it cannot fully leverage the TV library and must rely on originals and movies to populate the service. The results service could end up being very thin on content.
Chapter 5: Entering a very competitive market (14:40)
By 2019, the market for children’s entertainment will be even more competitive than it is today. Unlike other genres, kids content is evergreen. As well, Netflix and others have time to establish new popular characters that will be difficult to unseat when Disney joins the fray. These conditions will further constrain what it can charge for the service.
Chapter 6: ESPN will struggle to find its market (19:20)
Will and I discuss the opportunity for ESPN. Limited content and the need to balance the service against television will make it a tough sell. The market for sports entertainment is shifting very fast, and ESPN will need to fight hard to establish any market presence. It is particularly challenging because Facebook, Amazon, and Google will be looking to pick up online major league sports rights. Such competition for sports right will drive up the cost and make it that much tougher for ESPN.