Disney vs Netflix: Winners & Losers

This week Disney announced, during an earnings call, that it will end its distribution deal with Netflix and launch its own streaming service in 2019. Netflix stock dropped more than 4% after hours on that day, but ending at -1.5% the following day. Disney dropped 4% (but probably due to mixed results last quarter and a struggling ESPN).

So is this announcement bad for both companies, as Wall Street’s reaction suggests? Not necessarily.

If there is a Hollywood studio able to pull off a standalone OTT service, it’s Disney. Think of Disney, Pixar, Marvel, Lucasfilm, ESPN, ABC. Impressive line-up. Even if Netflix says that its relationship with Marvel TV will continue, I wouldn’t be surprised if that changes down the line as well. By the way, the last couple of years were full of rumours about Disney buying Netflix. Maybe licensing their content to Netflix was just to schmooze the way for an acquisition. That didn’t work, so now this week’s announcement sounds a bit like retribution.

As for Netflix, I am pretty sure it will survive Disney’s departure. It may suffer a bit on the kids and superhero genres, but Netflix is already preparing for the fight and earlier this week acquired Millarworld, the comic book publisher behind Kick-Ass and Kingsman. A move to complement (or replace?) Marvel. We can also look at what happened when Disney pulled a similar move on Starz – there was no impact on Starz subscriber growth. In fact, their main growth driver has been original content. Which is a key focus for Netflix as well.

However…. this is bad for consumers and, potentially, for the industry as a whole.

Here’s why:

Survival of the fittest

There are over 500 OTT video streaming services available worldwide. While this gives consumers more choice, I wonder how many of them would anyone subscribe to, on average, at the same time. My guess is 2 or 3… maybe 4 max? And one more for music? In a world where consumers subscribe to HBO, Netflix and Amazon, there may be space for Hulu, Showtime or Disney. But who else? There will always be long-tail demand for a long-tail offer. But is it enough to ensure survivability and profitability? Seeso, the comedy-focused SVOD service owned by NBC Universal, just announced that it will close by end of this year. Expect more announcements like these.

One-month subscribers

With the space become so fragmented with a lot of premium OTT services (I don’t expect Disney’s to be cheap), one trend we will see more is the one-month subscribers. Viewers will start subscribing to HBO for one month and binge watch Game of Thrones or Westworld. Then they will cancel that subscription, pay one month of Netflix and binge watch House of Cards or Stranger Things. Then Showtime with Homeland or Billions. And so on. On average they will keep paying for just one or two subscriptions at a time. Which leads too…

One-year packages

If consumers start cancelling their subscriptions after one month or two to jump to another OTT service, I can see some of these services offering discounted longer-term deals. In a way, Amazon started this with what is the best annual subscription offer out there: Prime. Maybe we will start seeing 2-year deals where the first year is quite cheap. Sounds familiar? Keep reading.

Cable TV 2.0

It seems inevitable that at some point a service will come up that will combine all or a lot of these OTT services, and offer them as a package. You know… like cable TV. Which is ironic, because this bundling of content is everything cord cutters are trying to avoid. Also, those discounted one- or two-year deals I mentioned above? Yes, like cable TV. Do you know what is also like cable? I have started to see Netflix subscribers asking for a channel that randomly plays episodes of different shows back to back. It’s all going full circle.

Piracy growth

The more content keeps getting split apart behind separate walled gardens, the more likely consumers will migrate to the one solution that has all the content they want: piracy. Which was exactly what OTT was trying to prevent.

And the irony doesn’t stop there. I never thought I would say this, but this time it seems that the TV industry has a lesson or two to learn from Music. What happened to the music industry? A handful of services came up offering all the music except for some hot new releases for a reasonable monthly price, on any device, with customizable and targeted radio stations and other music discovery tools, with the ability to share playlists with friends. However, TV is moving to a decreasing amount of content spread out over an increasing number of competing services, resulting in an increasing price.

In the music space, consumers have a very low incentive to resort to piracy. Gaming is another example of an entertainment industry that learned that lesson (Steam). But in TV? Yeah… I can expect a resurgence in piracy, unfortunately.

In conclusion, it seems consumers and the industry will lose at the end. Consumers will need to pay cable-like amounts of money to get access to the content they love. But many will just move to the dark side of the force…