TGIF – The Disney Empire Strikes Back

There’s been a disturbance in Hollywood. The Media industry has been facing turmoil and disruption the last few years from the Tech Titan forces of Facebook, Amazon, Netflix and Google. They’re often referred to as FANG. Consumers have been bypassing the traditional cable route, known as cord-cutting, and going straight to the web to watch movies, shows and other content. YouTube has experienced monster growth in its traffic. Amazon and Netflix are not just providing the platform to consume content on the web. They both produce movies and TV shows themselves and have won Golden Globes and Oscars. They emerged as the greatest threat to Media Empires. Who is the Dark Side in all of this, Hollywood or Silicon Valley? The answer completely depends on your point of view.

Today, over 1 Billion people watch things on YouTube. It has seen its user-base grow 10X in just 5 years. For comparison, Comcast, the largest American cable operator, has 23 Million subscribers nationwide. There is over 1 Billion hours of videos watched on YouTube worldwide every day. 80% of the viewers are outside the United States. 300 hours of video are uploaded every minute! In case you didn’t realize, Google owns YouTube. It was purchased in 2006. The Digital Age has completely disrupted the traditional media business model.

This week, the Disney Empire struck back. Disney bought the film and studio businesses from 21st Century Fox. To be clear, Disney will not own Fox News, which will remain with the Fox Network, its Sports division and Business channel. But Disney will own Bart and Homer Simpson as well as Avatar. It will own Fox’s movie studios and library of content. Perhaps the most strategic addition to the Disney Empire will be Hulu, which is a joint-ventured streaming network owned by Disney, Fox and NBC Universal. Disney will now have a controlling interest in the network and a huge tool in its fight against the Tech Titans.

Earlier this year, Disney announced plans to launch its own streaming business, which will feature films from Disney and Pixar, content that specifically won’t be available on Netflix. Disney’s Marvel and Lucas Film franchises will still appear on Netflix as part of a multiyear agreement, but that runs out in a few years. Disney is focused on a world where Disney’s treasure trove of content streams only on a Disney-owned service. If anyone can do it, Disney is the one. Especially now.

Hulu has roughly 12 Million subscribers and offers an online TV package that replicates a small cable bundle. Disney’s streaming plans weren’t scheduled to takeoff until 2019. They were starting from nothing. The thinking now is Disney could convert Hulu into Disney’s streaming service. Disney will also have 22 regional Fox Sports networks, which have the local rights to MLB and NBA teams. This will pair very nicely with ESPN, owned by Disney. Netflix and Amazon be warned.

There has long been a relationship between Silicon Valley and Hollywood, but for decades it was Silicon Valley’s junior role to provide support and help innovation. Pixar and Lucas Films are Bay Area gems that changed Hollywood forever. Pixar was run by Steve Jobs and Lucas was run by, well, George Lucas. Disney ended up buying them both. The acquisitions have been wildly successful and keep generating new stories, characters and stuff for Disney to monetize. Disney does that well.

Disney and 21st Century Fox own 9 of the top 10 grossing films at the box office this year. The official Star Wars release today will no doubt surge to the top of that list at light-speed. Early indications suggest the film will not disappoint. Expectations are certainly high. The Force is strong with Disney. Its Empire just got bigger and stronger. The Tech Titans will have an answer, that much is clear. It will be fascinating to see. What else is clear; Silicon Valley loves Star Wars.

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

May the Force be with you too.


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