The Escalating Streaming War
Walt Disney is the world’s largest entertainment company with films, merchandise, theme parks and television. Over the past two years, speculation has been running wild about what Disney would do about the continuous shrinking subscription audience of ESPN.
The rise of streaming content services such as Netflix and Amazon has led to a change in how people consume content. More and more people are doing away with their cable subscriptions and subscribing to these streaming services, as the cost of what you pay versus what you actually consume is so much better. According to Nielsen, ESPN has lost more than 13 million subscribers since 2011. Today, that figure is about 3.6 million subs a year. At the same time, who has been the slowest to cut their cords? Sports fans of course, as cable or satellite television remains the best way to catch a live sporting event. We believe the cord cutting could have been worse had it not been for love of sports telecasts. At the same time, research indicates a trend of highlights being more important than watching an entire event on television. Most trends point to people wanting speed and efficiency in their lives more and more, so it would stand to reason that if you could present the high points in rapid succession of a sporting event on demand, that might be more appealing than the investment of two to three hours of someone’s time to view the entire event. Overall, at the moment though, sports remain the glue which keeps many TV viewers from doing away with their cables and dishes.
That is not to say that Amazon is not interested in streaming sports events. They have just committed huge resources to land major streaming rights including the French Open tennis championship, football and professional rugby. The recently did a 50 million dollar deal for streaming rights to 10 Thursday Night Football Games starting in September. That’s around five times what Twitter paid for a similar deal last season. Why? According to research in 2015, sports on TV accounted for 93% of the top 100 shows. If Amazon is successful in penetrating the live sporting event arena, this is also possibly very damaging to ESPN as well.
Disney has decided to pull all of it’s content from Netflix. They will acquire a majority 1.6 billion dollar investment in BAMTech, which Disney will use to release a streaming service with a sport focus, which I’m sure will be ESPN-branded also as part of a direct-to-consumer service (like Netflix and Amazon) which will be Disney-branded. So Disney has a two-fold strategy here. One, to stem the tide of cord-cutters by putting ESPN into the streaming pool and Two, provide it’s world-famous and successful Disney entertainment content to it’s customers in a 21st Century delivery system like streaming. True, it’s a little late to be getting into the streaming game as the market is dominated and crowded already but Disney may be one of the few brands who could make it work out and at the end of the day, they really had to do something, as the subscriber losses at ESPN were really framing the company in a losing way no matter how successful their movies and theme parks continued to be.
The other side of the coin for Netflix and Amazon is that they continue to spend a lot of money to produce their own content. In recent years, studios and networks have been reluctant to sell their programming to newcomers who want to make movies and shows, so this created an opening for Netflix and Amazon to be buyers in this market and has widened the rift with traditional Hollywood studios. Disney content will still be available on Netflix through 2019 and all-new films that are produced for theatrical release through the end of 2018. 2019 is the target year for Disney’s new streaming service, which will debut with Frozen 2 and Toy Story 4.
What you need to understand, as a businessperson about this, is that this is a very substantial paradigm shift in the way people use and consume content and media now and in the future. The traditional ways content has been delivered are decaying slowly and the new ways are slowly growing. For instance, Cowen & Co released figures this week, which predicts Amazon Prime will be in more than 50% of U.S. homes this year, and I would say many of them also take advantage of the Prime Video services that Amazon Streaming provides. So, my point is that traditional media audiences will continue to shrink as “on-time and on-demand” audiences will continue to grow, putting downward pressure on traditional ad rates and overall effectiveness of delivery & success of advertising schedules. People will be harder to reach and more and more fragmented as time passes.
Can Disney execute this new streaming strategy? Many are referring to it as a “Hail Mary” pass, inferring this may be a long-shot effort to save and recover the lost subscribers for the ESPN brand. Certainly, time will tell but long time Clear Vision followers will know strategy is important, but worthless without strong and excellent execution.
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