Can Netflix chill as Disney goes it alone?

Hades from Disney's Hercules

Media powerhouse Disney is flexing its muscles, having thrown a curveball Netflix’s way by announcing its intention to pull all of its content from the video streaming company’s extensive library.

From 2019, the manoeuvre could see the Star Wars, Pixar, Marvel and Disney content eventually find a new home, although Marvel TV series like Daredevil and Jessica Jones will remain there, for now at least.

As Netflix – once merely a distribution platform for movies – has shifted strategy to champion its original content like House of Cards, Orange is the New Black and Stranger Things, rivals like Disney are pivoting to become platforms, in hope of fully monetising their video without being fully reliant on third parties.

This behaviour is at play across the board as consumers continue cable-cutting, instead opting for a pick-and-mix of video subscription services.

In the VOD space is Hulu, Netflix, Amazon Video On Demand, HBO Go, Vudu, CBS All Access, DirecTV, Comcast’s Searchlight, iTunes, Roku, iPlayer, YouTube Red. Now Disney is pushing two separate services, one for ESPN and one for its Disney content. If we look at linear TV channels, piracy channels and other forms of multimedia like music and video games, the picture becomes ever more cluttered.

As the video-on-demand (VOD) space becomes increasingly saturated, there may come a day when consumers yearn for the simplicity of selecting one provider for all their entertainment needs.

The Drum requisitioned some opinions from experts on how the move effects both media giants and the wider ecosystem.

Ben Johnson, chief executive of Gruvi

"To be honest this doesn’t surprise me. Disney is the best-placed studio to run its own streaming platform: it has the brand recognition, the breadth of content and the inbuilt value chain to make revenue from sales. We are living in an age where not only do content companies become streaming technology companies, but tech companies start investing in content strategies.

Despite it being a big blow I don’t think it will dent Netflix in the long run. The acquisition of Millarworld (the publisher behind Kingsmen and Kickass comics) shows that they have an eye for good IP with an established fan base and a storytelling universe that could one day rival Marvel.

For the audience, this could be very exciting as both companies work overtime to grab our attention with content. Also, expect Netflix to move into merchandising and value added arenas as the subscriber model begins to show its limitations and they look for some kind of product differentiation for additional revenue."

Tom Harrington, researcher at Enders Analysis

"This isn't surprising, Disney has experimented with a standalone service in the UK (which appears to be struggling with less than 100k subs) and in China (which was pulled by the regulators after less than five months) and are making further investment into streaming provider BAM Tech. As one of the world's most-loved brands it will certainly think that it can go alone. The longer it waits the harder it will be to crack a US market that is in the tail-end of nascency.

The last couple of years have seen content providers and content producers becoming increasingly wary of Netflix, with sentiments that deals do not adequately reward successful shows or that Netflix has used their acquired content to climb to ascendency, at the expense of their own platforms/channels. As a result, Netflix is bolstering its original productions and commissions, as it is seen as a more efficient spend and also out of necessity.

We don't really know what people watch on Netflix but contrary to disproportionate attention paid by the press and the company itself, viewers likely prize films and TV shows from third parties. As these become a diminishing percentage of Netflix's worldwide libraries, the desirability of its original content will be placed under increasing scrutiny."

Rachel Colley, Strategy Director at Wolff Olins

"For Disney, it makes sense to bring customers into its ecosystem and not give away a share of revenue to an intermediary. It has already made strides in this direction with the DisneyLife app.

Yet, from a user point of view this move will create even more fragmentation of entertainment services. With music streaming, users can choose between different services like Apple Music or Spotify but – with the exception of a few artists with a big enough audience to keep their music off streaming – customers can access everything they want, all in one place, whenever they want. The differentiator is user experience rather than different content.

With video streaming, the user experience is becoming ever more complicated. It’s impossible to get the breadth of viewing you might want, from kid’s entertainment, to sports, to film or shows, from any one service. The consumer has to stitch together different services – Netflix, Amazon Prime, Sky and now Disney – depending on what they are looking for.

In a time of economic uncertainty when people might be tightening spend, surely paying monthly subscriptions to multiple platforms to access a thin layer of brilliant content and a deep catalogue of stuff you don’t want, will be called into question? Consolidation might well be on the horizon."

Josh Krichefski, chief executive of MediaCom

Disney’s decision is certainly a bold move and there’s no denying that video on demand services have transformed how we watch TV and movies. As it stands Netflix may well be the most popular online platform but competitors like Sky’s Now TV are quickly catching up. While having an on-demand service is important for broadcasters, a bigger trend emerging is actually the move towards mobile on-demand specifically.

The ease of access via online may have contributed to changing viewing habits as audiences seek convenience every day. Yet having more choice to view our favourite programmes isn’t an issue but an opportunity. The channel to triumph in all of this will be the one that creates the most authentic, engaging and thought-provoking content that audiences crave. It’s not by chance that Game of Thrones is the most talked about show right now, even despite it being shown on Sky Atlantic and HBO."

Clive Malcher, senior vice president at Piksel

"This is a major blow for Netflix. Disney has created enough stellar content to warrant its own streaming service and the demand is clearly there. By pulling out of this deal they’re cutting out the middle man to target the consumer directly, making viewing Disney content more convenient than ever before. This move could have big repercussions for Netflix, whose stock has already taken a dip following the news. In an era where content is king, Netflix could struggle to keep family audiences.

The move could mean big things for Disney, with the expectation that it will be the platform for highly anticipated releases such as Toy Story 4 and the sequel to Frozen. The move by Disney should be applauded as the latest step in targeting the consumer and is sure to see many other production companies following suite if the move pays off."

Adam Simmons, vice president of content and marketing at Level Up Media and Dingit TV

The split does not have to harm anyone – in fact it can be an opportunity for both. Netflix has become an incredibly popular content creator in its own right while Disney, an entertainment powerhouse, has identified the need to embrace the online distribution popular with millennials. There's enough space for one company's success to not automatically deplete another's, particularly where there are specialisms to their platform and content. Although some companies may hold more investment than others, creativity allows for a level playing field. So long as innovation remains at the forefront of anyone’s thinking, there will always be room for growth within tech and user experiences.

Dingit.tv is in a market alongside multiple successful content streaming gaming companies such as Twitch and YouTube. We look to provide specific content that is different to what can be found on other services by curating premium gaming content so it is easy to surface for viewers.

We see a lot of benefit in complementary and specialised services for viewers. A single service trying to cover all content verticals can leave a fragmented community. We are building multiple destinations that specifically focus on different subsets of gaming and the same approach could be beneficial in other content genres.

Right now we are witnessing an explosive growth in online video consumption that is enabling platforms – some like Netflix with multiple, diverse content verticals and others like our services with a highly specialised offer – to entertain and engage millions. For viewers, the ideal situation is complimentary services that provide choice and enough competition to keep user experience high.

Christopher Elkins, chief strategy officer and co-founder at anti-piracy company Muso

Disney's move to start pulling its content from Netflix, isn't really surprising, especially if you consider the launch of DisneyLife across Europe toward the end of 2015 and the mission statement that went along with it.

Viewing habits have changed almost unrecognisably over the last 10-15 years and yet audience measurement hasn't really kept up. Both film and TV markets have started basing more and more of their strategical decisions from data – both their own, and via third parties, to enrich their insights and to give support to those decisions. Disney owning their delivery method means in time, they can fully own their data ecosystem to directly measure the most important new audience segment – streaming video.

Audiences consuming Disney content via unlicensed piracy sites currently make up a very significant chunk of their total measured audience, and an a-la-carte VOD or OTT subscription offer could help them to engage this audience segment on both price, availability and offer-quality.

Disney’s run at launching its own platform also ties in with the significant changes likely coming with PVOD and changes to exclusive windows. Disney is disrupting its own business, to better service new audiences, and it’ll need to make decisions about release strategies for different content types from its own data. In this future marketplace, the relationship between Disney's stellar box office revenues and VOD services, and the data and insight from that, could make for a leaner, smarter business.

In my opinion, it probably won't be the last studio to pull its content from the likes of Netflix, and new challenges could ultimately emerge around market fragmentation. But Disney is being bold, in a market that needs content owners to be more reactive towards audiences choosing to consume unlicensed content.

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John McCarthy

John is an entertainment marketing reporter at The Drum. He writes about the amazing marketing stories coming from the movie, TV, music and video game industries. He's also the hunt for the weirder trends in marketing and advertising.

Fuelled by tea.

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