Disney Doubles Down on Content to Save Its Future | Hacker Noon

Author profile picture

@davidjdealDavid Deal

David Deal is a marketing executive, digital junkie, and pop culture lover.

It’s often said that content is king. For Disney, content is a savior. That’s the takeaway from Disney’s earnings report for the fiscal year and fourth quarter of 2020.  

Disney’s Painful Year

It’s been painful to watch the COVID-19 pandemic crush Disney’s fabled parks and resorts. In September, Disney announced it would lay off 28,000 employees across its parks, experiences and consumer products segments. Disney blamed prolonged closures and capacity limits at open parks for the layoffs.

On November 12, Disney reported its first annual loss in 40 years, and declining attendance at its parks had a lot to do with that decline. Disney said that pandemic cost it $7.4 billion in operating income in the fiscal year, and $6.9 billion of that loss came from theme parks and experiences division.

But the numbers tell only one dimension of the story. There are people behind these losses – people who have brightened my life since I was a kid visiting Walt Disney World for the first time. Over the years, I’ve visited Walt Disney World several times with family and friends. You cannot appreciate just how uniformly hospitable Walt Disney World is until you’ve been there. Everyone — from the cast members who light up the streets in character as Mickey Mouse or Alice in Wonderland to the store cashiers and restaurant servers – uplift each guest. They are the face of a brand that makes magic moments.

Those magic moments are going to need to happen in the digital world for quite some time. The general consensus is that live experiences won’t recover for months and even years. What does Disney do until then? Double down on digital content.

Disney Builds a Foundation for Its Future

Disney has always been one of the world’s most culturally relevant brands through its movies, music, and TV shows. The company has either created or acquired content that has shaped the tastes of generations, ranging from Cinderella to Black Panther. In 2019, Disney made two what one of the most important and fortuitous moves in its history:

  • In May, Disney agreed to acquire Comcast’s one-third stake in Hulu and to take full control of the streaming service. Hulu gave Disney an instant streaming audience of 28 million (at the time) and a prestigious content library with popular titles including The Handmaid’s Tale
  • In November, Disney launched of Disney+ to great fanfare. Disney+ gave Disney a arm to unleash its powerful library of content, including the coveted Marvel franchise, as well as new titles such as the wildly popular The Mandalorian, which tapped into the eternal appeal of Star Wars

Little did Disney know that a global pandemic would trigger a massive shift in people’s entertainment options, from going to the movies to streaming them. By the end of the fourth quarter of fiscal 2020, Disney+ subscribers had grown to 73 million, and Hulu paid subscribers had grown to 36.6 million. 

Counting ESPN+, which Disney launched in 2018, Disney was giving Netflix some real competition:

And the financial results reflect the increase in subscribers. In its earnings announcement, Disney said that its Direct-to-Consumer and International division, which includes streaming, had generated $4.85 billion in revenue, up 41 percent year over year. 

Disney knows where its near-term future is: streaming. And so it’s doubling down. 

Doubling Down on Streaming Content

On October 12, Disney reorganized its media and entertainment divisions in order to focus on streaming content. Kareem Daniel, the former president of consumer products, games and publishing, will now oversee the new media and entertainment distribution group, responsible for content distribution, ad sales, and Disney+.

In an announcement, Disney said that its “creative engines will focus on developing and producing original content for the Company’s streaming services” – meaning that Disney’s creative teams, ranging from Pixar to Lucasfilm, will be all-in to support streaming, with Disney+ and Hulu at the center. Meanwhile, a newly created Media and Entertainment Distribution group under Daniel will be responsible for monetizing and distributing that content.

And you can be sure that: 

  • Daniel is now under enormous pressure to monetize that content with advertising, co-branding, merchandising, and more. 
  • The wants and needs of the streaming audience will dictate what kind of content gets created. As The Wall Street Journal noted, “The various programming arms, including movie and television studios, will be aiming to feed those streaming services, not just legacy outlets.” Disney noted that Daniel’s team will also be responsible for “data and technology functions” – meaning Disney will try to bolster its own data science capabilities to anticipate the tastes of its streaming audiences and create content accordingly, as Netflix does so brilliantly. 

Disney didn’t wait for its restructuring to change the way it operates, either. In September, Disney bypassed movie theaters in the United States and released its feature film Mulan on Disney+ (while distributing the movie in theaters internationally). Mulan received mixed reviews and lackluster box office receipts globally. But as Kay McGuire of Screen Rant discussed in an analysis of Mulan’s financial results, Disney+ was a lifeline for Mulan:

Mulan was a success for Disney+, significantly increasing the number of subscribers and proving that almost 100,000 people would pay an additional $30 to access the film. While Mulan suffered from calls to boycott the film following 

Liu Yifei’s comments about the Hong Kong protests, alienated Chinese audiences with its all-white production team, and dissuaded American audiences by cutting the songs and characters that made the animated Mulan so beloved, it still managed to bring in $35.5 million from streaming alone. If Mulan had premiered in theaters with the same opening weekend box office, it would have been a massive commercial failure and the lowest-performing live-action Disney remake, tying with Maleficient: Mistress of Evil. Because Mulan premiered only on Disney+, the total gross is a victory and a sign that future releases that premiere on streaming can still be successful.

On December 25, Disney will skip theaters and release Pixar’s animated movie Soul on Disney+. Another big date to watch: on January 15, 2021, Disney will release WandaVision on Disney+. WandaVision is significant because it’s the first series from Marvel Studios to Launch on Disney+. Soul and WandaVision represent even bigger tests of Disney’s streaming-first strategy.

Where Does Disney Go from Here?

Clearly, Disney is not taking the pandemic sitting down. The focus on streaming plays to a Disney strength: Disney benefits from a huge library of content. But it remains to be seen how well production studios will be able to create new content as the pandemic continues. (For more insight, here’s a fascinating look at what it’s like to shoot a movie right now.) Even still, creating and distributing new content for streaming is a better (if difficult) proposition for Disney than attracting people to its theme parks and resorts, or theaters for that matter. Who knows when people will feel comfortable returning to theme parks or theaters in droves? 2021 is probably a lost cause already. 

Meanwhile, author and business professor Scott Galloway offers another potential way forward: online education. 

“ . . . who is better at capturing and sustaining a child’s attention than Disney?” he wrote recently. “Disney should launch a (remote) educational product for kids in grades K-12.” He elaborated:

The market opportunity is substantial. There are 140.8 million primary and secondary school-age children in the US, Japan, and the EU. That’s approximately 84.5 million families with kids K-12 (assuming 1.93 kids per family in the US; 1.55 kids per family in the EU; 1.44 kids per family in Japan).”

According to Galloway, online education could give Disney a potential $30 billion a year recurring revenue business as secondary education continues to move online during the pandemic.

It’s an intriguing idea. And as the pandemic rages, all ideas are on the table.

Note: I am an investor in Disney and Netflix.

Author profile picture

Read my stories

David Deal is a marketing executive, digital junkie, and pop culture lover.

Tags

Join Hacker Noon

Create your free account to unlock your custom reading experience.

read original article here