Disney announced today that it will end its distribution agreement with Netflix and launch its own direct-to-consumers online video streaming service in 2019. Why is this a big deal? Because it could allow Disney to push a whole lot of other companies out of business. But if Disney's not careful, this move could put Disney's own future at risk, as well.
Imagine if film studios owned their own movie theaters. If you wanted to see the latest Pixar or Star Wars movie, you'd have to go to the nearest Disney-owned theater. Want to see the latest Fantastic Beasts or Wonder Woman film? You're off to the local Warner Bros. theater. Fast and Furious or Despicable Me's Minions? They are at Universal's theater. And so forth.
That's what could happen online if studios all end up developing their own streaming services, as Disney now is proposing to do. Instead of having Netflix or Amazon licensing films and TV shows from multiple studios, each studio could have its own service, forcing customers to subscribe to a whole bunch more services if they want to see everything Hollywood has to offer.
Of course, most of us can't afford to do that. So we will end up subscribing only to a few services. And that could force smaller studios out of business, if not enough people subscribe to their services and they can't sell their films and shows to bigger studio-controlled ones.
Netflix actually anticipated this happening, which is why in recent years it has dropped billions of dollars to essentially become a studio and create its own original programming. Netflix wanted to ensure that it hooked enough consumers on its own Netflix originals before other Hollywood studios pulled their content to create their own streaming services.
Now, some of you with really long memories — or legal training — might remember that example I gave of movies studios owning their own theaters was not hypothetical. That's actually how studios operated in the early part of the 20th century. However, a 1948 Supreme Court case, United States v. Paramount Pictures, ruled that practice illegal — a violation of federal anti-trust laws. Studios were forced to sell their theaters, theaters were free to book films from any studio, and eventually more studios got into the business as established Hollywood players no longer could block the access to screens.
So if studios controlling the places where their films are shown is illegal, why can Netflix make its own shows? For that matter, why can NBC create its own TV shows, or Disney show its own movies in its theme parks?
Well, in 1948, television wasn't yet a well-establish medium, Disneyland hadn't opened, home video stood decades away, and the Internet was just science fiction. Movie theaters were the only places for filmed entertainment to be shown. If a studio controlled those, then there were no other options for independent studios or filmmakers.
Over the years, the federal government hasn't succeeded in applying United States v. Paramount Pictures to studio control in other media, mostly because TV networks, streaming services, and even theme parks continued to license content from other studios, in addition to their own. So long as independent producers have access to the market, the precedent established by United States v. Paramount Pictures doesn't seem to be an issue.
But let's keep talking about access to the market for a moment. Because here lies the huge risk to Disney. Imagine if NBCUniversal decides to create its own streaming service, in response to Disney's move. That's not a stretch — Universal has a huge library of films and TV shows that would make its service an attractive option for millions of consumers. (Do you know what is the highest grossing animated franchise of all time? It's not anything from Disney or Pixar. It's Universal's Despicable Me.)
NBCUniversal actually would have a huge advantage over Disney in online streaming because it is owned by Comcast, one of the largest providers of Internet access in America. What if Comcast decided to allow its customers access to an NBCUniversal streaming service at a discount? And not to count any time watching that service against their data cap?
What if Comcast took it further, and charged its customers extra for an Internet plan that would allow them to watch Disney's streaming service? Or if Comcast barred its customers from accessing Disney's service altogether? Disney doesn't own an Internet provider, so it would have no way to protect its access to the market if competitors such as Comcast took this approach.
Fortunately for Disney, the federal government has had a policy of enforcing "net neutrality," which prohibits Internet providers from favoring any one type of requested content over another, such as the ways I described above. Unfortunately for Disney, however, the current administration, almost all Republicans, and even a few Democrats are trying to eliminate net neutrality. Comcast could get to wipe a Disney streaming service off the Internet for its customers, if they succeed.
So Disney either needs to deploy its lobbyists to Capitol Hill to step up campaigning for net neutrality... or it needs to get a move on with that long-rumored merger with AT&T.
One way or another, the entertainment business is about to get even more political. Disney's move will increase pressure for entertainment companies to merge or take over competitors in order to survive. And it likely will force independent studios and filmmakers to get creative to save their business as access to the market narrows.
But Disney's move also could create enormous opportunities for filmmakers and creative talents working with or within Disney, as the Mouse will need a lot more content to keep its streaming customers happy.
Like I said, things are about to blow up in Hollywood. Throw some popcorn on the fire... and let's get ready to watch what happens.
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FACT CHECK: ESPN once again reported another "profitable" quarter.
May want to check your data source.
Part of ESPN's problem is that sports team want a piece of the action. That is why the Bulls, Cubs, Sox, and Blackhawks all appear on Comcast SportsNet. It is half owned by the teams (well, owners) and the other half is own by Comcast (pre merger). Keep the money in Chicago instead of sending it to CT or CA.
Robert and my Alma Maters Northwestern and University of Illinois are in for the prize as well with the B1G TEN Network.
Why pay somebody else for something you can do yourself?
It was either going to be Disney or NBCUniversal. Disney decided to draw the first blood.
While Disney has the money but they don't have enough programming. There is more to the announcement than meets the eye. Bet on it!
Though, the Office alone may be enough to keep my allegiance.
AT&T would have to divest some assets to merge with Disney such as DC Comics and Looney Tunes.
I bet you Comcast would be more that interested in acquiring those properties. At least it wouyld make them more willing to relinquish the Marvel Theme Park rights east of the mississippi river if that were the case.
There was a rumor that Verizon might be interested in Disney but they seem too leveraged to make a bid on Disney.
Disney might considering then buying a bunch of internet providers to come close to the reach that Comcast and AT&T has such as Clear Channel and/or Sprint.=)
I'm disapointed about this, I hope it's US only not worldwide... ABC1 (AKA non stop Scrubs and 8 simple rules) died as a channel here a long time ago. ESPN carved out a niche for relaying US sports and put that all in Jeopardy by playing against Sky (read as "Fox does DirectTV") for Soccer rights (it won some rights but the whole business failed and closed down). I know Disney do offer a kid marketed streaming platform, but I'm not going to sign up to yetanotherplatform (tm).
Disney likes to be separate, to improve their brand recognition, and are capable of doing that due to how the company has developed and controlled its inventory. And, sure, Universal has a vast array of entertainment sources to consolidate their product on the net. But as Warner's and Paramount have shown in the past (with The WB and UPN, respectively) not all studios are created equally. Just because Disney can do it, or Universal (or even Fox) doesn't mean they all can.
Should be interesting to see how Disney's profits go, and see how many try to follow suit. And how many fail, and end up crawling back to services like Netflix.
So based on all those reductions it can't be going that well!
Honestly, Disney could launch a streaming service solely around ESPN and be successful, but by lumping all of the company's content under 1 umbrella allows it to appeal to a wider range of users. In reality, they already have a streaming service as all of their networks (and catalog of Disney movies) are available for direct streaming through individual applications (ABC, Disney Channel, Disney XD, Freeform, ESPN, Disney Movies Anywhere, etc...). The only difference with this service would be that all of the individual apps would be gathered under one service and instead of validating users through their cable subscriptions (or movies they own in their digital account), users could pay Disney directly for access.
How Disney manages access and content will be critical. If ESPN is still available on cable/satellite packages at the same price it is through the new streaming service, potential viewers are likely to stay with their current providers. Disney has to make the service appealing financially, while not losing their core audience. I'm not sure how many users have switched to viewing ESPN through the app, but I can say that I watch ESPN probably 30-40% through the app (frequently as a second screen while I'm watching another ESPN-broadcast event on my television). There have been surveys recently to indicate that the number of televisions being sold over the past 2 years has significantly declined, with the thinking that fewer and fewer people are actually watching TV in their homes and increasing viewing on phones, tablets, and computers. If that is indeed the case, then this move to a streaming service positions Disney to cut ties with cable/satellite providers the second that model collapses, which could occur within the next 5-8 years.
Hopefully things have improved.
I know a lot of people that have WWE Network, and love it, and we occasionally use HBOGo without any issues. Remember that streaming services are only as good as you internet connection, so if you have a crappy ISP, it doesn't matter how good the streaming service is.
Clearly BAMTech will need to do some serious upgrading to handle the numbers that ESPN (and ABC Sports) will pull. There may also be issues involved with certain league contracts that may not allow ESPN to stream events exclusively, or at all (I know CBS was prohibited from streaming certain NFL games last year). However, the fact that Disney spent $1.58 billion (over a third of what it cost to purchase the lucrative LucasFilm) to acquire the company means they're serious about this venture.
Marvel, Star Wars, etc. could still be licensed to Netflix.
This isn't surprising (and it's 2 years away), so it's possible things / agreements could change.
Plus Disney's deal with Netflix is relatively new, (and Netflix cycles content ll the time)
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I also wonder if the new app's insatiable appetite for content is going to cause Song of the South to be released in the States.