Disney Answers the Digital Age

Competition is as American as Baseball and Apple Pie. It brings out the best and worst in people. Rivalries make competition great. Rivalries are born from competition. We naturally think of Coke and Pepsi. The Giants and Dodgers. Perhaps even the Hatfield’s and McCoy’s? I know I just dated myself there. But competition makes for a great Hollywood story. The irony is, Hollywood itself got caught off guard, and has been losing to Silicon Valley. But Hollywood has fought back. And the momentum has shifted as Disney just launched an offensive.

The battle for viewer eyeballs in the Digital Age has become fierce. Content creators have expanded beyond Southern California, and many have flourished by the Bay. Netflix and Amazon have been clear disruptors to Hollywood and are winning over the Academy. More importantly, they’ve been winning at home and on the road. Mobile devices changed the game. The prize is so big that Apple and Google are supremely focused on content delivery. Hollywood was accustomed to telling consumers when and where to watch. Them days are long gone. Subscription is the model of choice. But to get subscribers, you have to deliver what they want, how they want it and when they want it. That’s the Digital way. Disney is proving it gets it.

Nearly every home in America has a TV. That number is estimated at 94%. But fewer and fewer Americans are watching traditional television with cable being the dominant connection. The younger generation has been cutting the cable cord. It is estimated that the number of households with cable will decline by nearly 30% by 2030. It is estimated that 33 Million Americans cut the cord last year alone. A survey last year showed over half of Americans are already streaming content over the web. According to PricewaterhouseCoopers, 90% of Americans between the age of 25 and 34 access TV content via the internet. Disney knows how to hook the young.

Disney CEO Bob Iger said Disney+ is the company’s top priority. After losing to Netflix and cord-cutting in general, Disney went on the offensive by buying the Fox studios and library of content, with plans to distribute directly to its loyal consumers. Disney+ is for young people. Disney is building Disney+ to be the premium streaming option for kids and families. While Netflix has spent heavily on kids programming, investing in its own animation division, its TV and movie options for kids have not been that successful. Viacom’s Nickelodeon and Disney have dominated kids’ shows for years. Disney+ will immediately include 18 of Pixar’s 21 movies, most Marvel films, and 30 seasons of Simpsons episodes, which came in the Fox acquisition. It will also include the Disney classics like Snow White, Cinderella and the Little Mermaid as well as the more recent films like Frozen. Disney’s library is loaded, and the future is ripe with new content from Pixar, Lucas Films and Marvel, not to mention its new section from Fox and National Geographic.

But it doesn’t stop there. Think about what isn’t included in Disney+. There are no sports. That’s for ESPN and ESPN+. There’s no news or prime-time television or news from ABC. Disney’s adult content will be found on Hulu, which it is now the controlling owner of after the Fox deal. Disney anticipates it will capture 60-90 Million Disney+ subscribers by 2024. Those are big numbers. Bob Iger said the pricing was purposefully set to appeal to as many people as possible. Disney is rolling the platform out on what appears to be a discounted rate while Netflix recently raised pricing. Disney+ will be available starting in November for $6.99 a month, or $69.99 per year, a price point the company hopes can undercut Netflix in an increasingly crowded field.

The crowd loves it. Disney’s stock rocketed higher in response to its announcements at its annual investor day. The stock hit $130 at the open for the first time ever on massive volume. The stock traded 13 Million shares in the first 5 minutes. That is more than the stock averages in a single day. Up $11 on the day, Disney alone accounted for 90+ points on the DOW. Disney had been stuck in a range between $100 and $120 for 4 years, and it finally broke out. It’s been the case for the whole media space in general. This is a major trend change.

Competition is alive and well in the Media and Entertainment space. Disney has figured out how to blend traditional Hollywood with the Silicon Valley way. Bob Iger has done a masterful job at the head of the company since he turned it around in 2005. Acquiring Pixar and Lucas Films secured the brands and the Bay Area disruptive genes into the Walt Disney company. But Silicon Valley knows competition better than anyone in business. How Netflix, Amazon and the other Titans of Tech respond will be impactful and fascinating. Most of all, it’s investable.

Have a nice weekend. We’ll be back, dark and early on Monday.


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