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Could Disney’s New Netflix-like Service Be a Step Toward Premium Video On Demand?

Why is Disney walking away from a deal which nets them as much as $300 million a year?

That’s what Ben Weiss, chief investment officer at 8th & Jackson Capital Management, wondered when Disney announced its intention to end its licensing deal with Netflix in 2019 in order to launch its own streaming service. By Weiss’ reckoning, Disney makes between $200 and $300 million a year in pure profit from its Netflix deal.

That’s it? They probably have that much cash just lying around Disney Headquarters, like, “Here’s the break room, here’s the mail room and here’s the money room where we stash our mad cash. We like to sometimes stand and stare at it, get lost in thoughts of how rich we are. And you bet your ass we Scrooge McDuck-swim in it.”

No, but seriously, Disney is insanely successful (or at least they would be if freakin’ ESPN wasn’t in such a cord-cutter-induced tailspin right now, but that’s a story for a different day). You probably think they can recoup that profit from Netflix no problem even with everything they’ll now have to spend on advertising, server maintenance and original programming to make their streaming service palatable.

Weiss ran the numbers, though, and here’s what he found:

To replace the up-to $300 million that will disappear when the Netflix deal ends, Disney would need to attract 8 million subscribers, paying $10 a month, assuming a 25 percent operating margin. With the proliferation of competition in the streaming market, it will be difficult for Disney to sustain this level of scale with 9-month-old films and library content.

As a frame of reference, Amazon Prime has 80 million U.S. subscribers (although only around 70% of those subscribers actually use the streaming video part of their membership) compared to Netflix’s 51 million, Hulu’s 32 million, HBO Now’s 2.4 million, Showtime’s 1.5 million and CBS All Access’ 1.4 million (the HBO and Showtime numbers don’t include cable subscribers). That’s the market Disney is jumping into, and they’re not only doing it with their Disney-branded products but also with ESPN since they will launch a separate streaming service for the beleaguered sports leader next year.

You bet against Disney at your own peril, but we can’t automatically assume they’ll pick up those 8 million necessary subscribers no problem just because they’re Disney. I mean, they probably will because, again, Disney, but Weiss wonders if they’re cooking up something special. What if they’re planning to make their new movies available on their streaming service at the same time they’re playing in theaters? There’s been no suggestion that they’re actually heading that way. In fact, when Disney’s CEO first announced this new service reports got the distinct impression that many details have yet to be figured out, such as whether or not the new Disney service will just include Disney-branded programming or also LucasFilms and Marvel. But Weiss laid out the case for a day-and-date strategy anyway:

On a broader level, day-and-date theatrical releases, supported by on-demand digital accessibility, will help Disney forge stronger emotional bonds with its most important customers: children. The current Disney model of windowing content through a Byzantine distribution strategy denies kids ubiquitous access to Disney and Pixar films. By making its movies available everywhere, on-demand, for all kids, Disney films will deliver more moments of comfort, hope, laughter and inspiration. Access will make the heart grow fonder.

Would the theaters stand for it? If it was anyone else, absolutely not. But if it’s Disney how can they say no? Plus, even though to this point Disney has been the fiercest opponent of premium video on demand proposals it might be because they’ve been building up to this very moment where they could keep it all in house.

This is the type of idea which has come up before and keeps getting kicked down the road. The studios hate the voluntary windowing system determining when movies can play or be sold where, but the theaters insist it’s central to their business model. Could Disney blow it all up in 2019? Just because one analyst thinks so doesn’t mean it’s actually happening. Disney might still be of the belief that why use Frozen 2 to suck in subscribers in 2019 for $10 a month when you can charge $10 per person at the theater all the while knowing that everyone will see it multiple times? At least for now. Their move into streaming might be made with an eye toward the future, one where day-and-date premium video on demand is a real thing by which point they’ll already have millions sucked into their Netflix-lite service.

What do you think? Let me know in the comments.

Source: THR


  1. I doubt this attempt will succeed — and I very much HOPE it fails. I do NOT want to see 6 or 12 content creators all set up their own exclusive access subscriptions. I’m already angry at ABC for their plans at locking Star Trek Discovery behind their separate subscription site.

    What if we ended up with 10 different providers, all who keep their content exclusvely to themselves. If they all charged just $10 / month, that’s $100 / month to view all the shows I like, even if each subscription has only one or two shows I want to see. I won’t do it. I think the Netflix model is so much better. Lots of varitey for one reasonable monthly fee.

    I MIGHT be okay if Netflix a cable model where I maybe paid an extra dollar or two a month for premium content. Disney and ABC could hide their exclusive stuff there.

    But if the Disney plan succeeds, you can be sure others will follow. And that’s a dismal picture of the future of entertainment.

    1. Just to clarify, it’s CBS, not ABC, that has Star Trek: Discovery. At least that’s the case in the States. Everywhere else in the world is getting Discovery through Netflix.

      We’ve been trending this way for a while now, but as you (and many others) have pointed out this Disney deal signals that the future of streaming is going to look a lot like cable with all of these seperate tiers out there that will probably eventually be bundled together (on Hulu or Amazon). The best user experience (and best value) is to stick with the buffet model of Netflix where everything is gathered in the same place. However, the entire industry is having an argument with itself right now over whether or not Netflix is their enemy or friend or both, and the pure profit they make from their Netflix licensing deals no longer seems as sweet when Netflix is being built up to be bigger than all of them combined. So, they’re all leaning toward seperating off into their own little streaming ecoysystems, seeing if they can starve Netflix or force into a sale due to the debt it’s incurring to fund its original programming.

      It sucks for us, but it’s happened before. Much of Netflix’s history has matched HBO’s, and they too reached a point where they were so big the studios started pulling out and forcing them to crank out original programming. Their success in that area led to an explosion of original programming on cable. But, of course, that didn’t end up with us having to pay monthly fees for every channel’s own streaming service.

      The good news (or bad, depending on how you look at it) is that NBC already failed in this area. They just pulled the plug on Seeso, their streaming service. CBS All Access isn’t exactly killing it either. So, it will probably take a Disney streaming service to be successful to really kick off the mass migration away from licensing back catalogs out and instead putting them all behind seperate, network-specific paywallls.

  2. I was fully expecting that the deal would end with Disney outright buying Netflix…and even now I wonder if the whole thing is some sort of elaborate negotiation tactic in order to remind Netflix that they need more than just their self-productions to survive, especially with the giant debt they already have.

    1. The fact that Disney is coming out of the gates openly admitting they haven’t figured out all the details … well, I don’t know if that feeds into or speaks against your theory about this being one giant negotiating tactic. However, I do think there’s a possibiliy that Disney would ultimately prefer to simply buy Netflix. That’s kind of the Disney way. They can’t be too happy about Netflix buying Shonda Rhimes away from ABC, though. That feels like Netflix flashing a giant middle finger.

      1. I’ll just lean back and see how it plays out…remember how long it took until they had their hands on Pixar? Though Pixar kind of won that particular battle in a number of ways….

      2. Good comparison with Pixar. If I remember correctly, Disney waited them out, fueled by industry rumors about Finding Nemo being a total mess (which, to be fair, it kind of was, as per usual Pixar proecedure of its films taking a while to find themselves). Then it made all the moneys, and gave Pixar all the leverage.

      3. Nah, Disney initially botched negotiations with Pixar…a change in management at Disney paired with Pixar struggling with making Cars work and then Disney offering Lassiter a position which would allow him to retain creative control smoothed that one over. Best decision Disney ever made, the animated division should always be in the hand of someone creative and not someone who is more concerned with making as much money as possible.

  3. > In fact, when Disney’s CEO first announced this new service reports got the distinct impression that many details have yet to be figured out, such as whether or not the new Disney service will just include Disney-branded programming or also LucasFilms and Marvel.

    They would be crazier(they already are crazy) not to. They bought those licences to print money and have been milking them so. Also it greatly broadens their content.
    Dads can figuratively masturbatory over the new fan service films when their kids aren’t watching “Frozen” again.

    1. “Dads can figuratively masturbatory over the new fan service films when their kids aren’t watching “Frozen” again”


      Yeah, it was pretty surprising to hear the Disney CEO hem and haw over what would become of the Marvel/LucasFilms titles. From my understanding, they will all leave Netflix when the contract is up, but he was leaving open the possibility that future movies might go to Netflix or might even end up on their own seperate streaming service. Really, the whole thing feels more like an IOU than a “we have this all planned out and know exactly what we’re doing.”

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