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Disney DTC 2019 not a threat to Netflix, for now

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Disney’s 2019 direct-to-consumer (DTC) service will rely on big movies to draw subscribers in and will curate other original content to make it a service subscribers use once or twice a week. This approach should more than justify the $5 to $10 a month cost.

Disney DTC 2019 in brief

The 2019 Disney DTC service will showcase the 6+ big movie releases per year from Disney, Pixar, Marvel, and Star Wars.

The company will also produce sufficient original movies and TV shows to make usage of the service an essential part of weekly, not daily, viewing.

This strategy should justify the proposed sub-$10-per-month cost for a large number of consumers without disturbing existing relationships with pay TV operators.

 2019 service will focus on current content

Speaking in the Q4 2017 earnings call, Bob Iger, Disney’s CEO, laid out the content the company plans to deliver in the direct-to-consumer service to debut late in 2019.

Bob Iger CEO Disney

Bob Iger, CEO Disney

Streaming the latest Disney, Marvel, Pixar, and Star Wars feature films in the first pay window.  Our studio will also produce 4 or 5 feature films per year exclusively for this service. We are also planning to produce a number of original series for the service. We are already developing a Star Wars live-action series, a series based on our popular Pixar Monsters franchise, a High School Musical series, and a series from Marvel television.”

Also, the company will include other new movies from the Disney creative team, as well as short-form films and features from across the company. Thousands of hours of Disney film and TV library products will complement this recent, original, and exclusive content.

Pricing

Though Mr. Iger was not specific about the pricing, he did say it would cost “substantially below where Netflix is.” He justified this position because he said the services would have much less content than Netflix currently has. Mr. Iger seems to understand it would be unwise to put potential customers in a position where they must give up another service to subscribe to Disney DTC:

It is our goal to attract as many subscribers as possible starting out.”

With a price point between $5 and $10, many consumers will feel comfortable subscribing to Disney DTC and keeping Netflix or their existing pay TV subscription.

Given the early pay window that much of the content will be available in, the service seems unlikely to disturb existing relations with pay TV operators.

With ads, or without?

When the company first announced it would launch a DTC service in 2019, it said it would leverage ad targeting technology to boost revenues. In the Q4 earnings call Mr. Iger seems to have changed his mind:

We’re currently not planning to sell ads on the Disney service, but that’s just in development. There may be some interesting possibilities in terms of sponsorships versus inserted ads.”

The decision to make the DTC service ad-free is a solid one. All the data suggests that the premium content in the early pay window that will anchor the service is best delivered uninterrupted.

Focused on current movies, not on Netflix

Rather than providing a huge library from the outset, Disney is planning to base the service around the tentpole movie releases throughout the year. The 6+ movies this will involve will be augmented by 4 to 5 exclusive movies released through the service. Several original television series will help fill in the gaps.

In other words, according to Mr. Iger, Disney will “produce and schedule product in this OTT service” to provide interesting new content on a weekly basis. It certainly won’t fill the daily watching needs that Netflix tries to provide, but should more than justify the monthly cost for a large number of consumers.

The big loser from Disney DTC

The biggest loser when Disney DTC releases will be DVD and EST sales and movie rentals. Currently, the only way to watch movies in the early pay window is to buy a copy or wait a couple of months more to rent them. With Disney DTC, consumers will be able to watch the biggest movies for the four studios immediately. Given how fast movie sales and rentals are falling this move may not be a very big loss to Disney. However, it does illustrate that the online service may cannibalize existing revenue streams, and not be all upside for the company.

Mr. Iger sounded one subtle note of caution in the earnings call. He said:

We are working on the cadence that we will produce and schedule product in this OTT service. We’ve not determined fully what that will be.”

There is a lot that is sure to happen before the Disney DTC service debuts two years from now. So, while the company sounds quite sure of itself today, it could be that circumstances cause substantial changes in the strategy.

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