11 Lessons from the Success of Disney+
For all of Disney’s success in the media industry and with Disney+, its SVOD lessons are remarkably conventional and broadly applicable. (Also note: While Disney has stated that Disney+ achieved more than 10MM day-one sign-ups, it probably had 1-2MM more, with Disney choosing to “bank” them for a later earnings disclosure… which means 15MM-20MM is likely today).
#1 – Clarity of Messaging Matters
Although most consumers know the Disney+ brand, Disney went out of its way to *constantly* communicate and reiterate exactly what it would offer consumers. It’s almost impossible to see the pure “Disney+” logo — in almost all instances, it also says “Disney + Pixar + Marvel + Star Wars + National Geographic”. That sounds like a spec sheet, not a marketing message – but it’s incredibly effective. The extent Disney committed to this messaging is shown by the fact that even when it advertised Disney+’s franchise-specific shows – such as the Star Wars TV series The Mandalorian – it still presented the logo for other IP brands (this is pretty weird, really). The ability for Disney+ to communicate exactly what is being sold, offered, and why you want it is perhaps the service’s biggest advantage versus competitors.
What is Apple TV+ and why do you want it? Why do you need HBO Max if you already have HBO, or Netflix, or you're one of the 70MM American homes who never liked HBO? All hard to communicate. Even HBO overall sometimes struggles – audiences get that Game of Thrones is compelling, but the remainder of the brand is the abstract notion of “quality” and doesn’t clearly say why you need to subscribe year-round versus on occasion. With so many SVODs now available, fewer corporate partners and fewer next-day episodes supplying the service, as well as new offerings such as add-ons and live TV, Hulu’s brand/positioning has also become more muddled (hence the decision to start intermingling its brand with FX).
#2 – Marketing Matters. For Everyone
While the enormity of Disney+’s day-one sign-ups (10MM+) is indicative of the organic demand for the service, as well as the clarity of its brand/value proposition), it’s important to note the herculean efforts Disney made to market the service over the preceding six weeks. Consensus seems to be that at least $250MM is being spent on marketing from Sept to EOY just for US+Canada (one analyst tells me it’s their biggest campaign ever). Next year is expected to be another $350MM+ globally.
More importantly, Disney launched an incredibly wide-ranging and reaching campaign of cross-company activations and promotions to launch the service (ESPN’s Stephen A. went on several pre-release rants on how good the service looked; Disney fan events, stores and attractions were all equipped with signup kiosks). Then there is the Verizon partnership, which meant 17MM accounts were emailed on the first day of release and offered a free year (the promo is available through Q2 2020 and Disney would probably be paid <$4 per subscriber). The fact that Disney+ had the easiest marketing message and was selling something everyone already understood (SVOD) and which had their favorite content… but still spent, and spent, and spent (let alone before churn could even begin) tells you a lot.
#3 – The Force is With Corporate Alignment
This marketing message was only possible because Disney had aligned every part of its business around the idea that what matters most to Disney is Disney+. Full-stop. Media companies have long dreamt of such cross-company synergy and alignment, but it’s hard and rarely seen. We’ve probably not seen such a mobilization since Facebook decided it had to pivot to mobile – but even then, Facebook’s business was more singular than Disney’s, which had to mobilize everything from home video, to cruise ships and a sports network. The company even shifted films once intended for theatrical release in 2018 into direct-to-SVOD releases more than a year later.
It would be good to see more (e.g. home video copies of theatrical films should be released after they premiere on Disney+, not first, Disney’s Marvel Unlimited comics subscription should be free to Disney+ subscribers, some special features/extras are still exclusive to purchased copies of Disney films), and we likely will soon (e.g. free Disney+ with annual park passholders), but this was as unprecedented as it was effective.
#4 – Subscribers Matter More than ARPU
Disney stunned the market when it announced $7 a month. Then it said an annual plan would be $6. Then the three-year plan came in at $4 (again, Disney is probably getting <$4 per Verizon subscriber, too). Disney is the greatest content producer the world has ever seen (before 2016, no studio ever had more than the top three films in a year; Disney will likely have the top eight in 2019) and owns a plurality of today’s must-watch franchises and cultural content. To anchor near the bottom of the market despite this fact must have been terrifying and incredibly controversial (“it’s not necessary!”, “we can’t de-value our brands like this”, “we’ll erode the box office”, “we’ll alienate exhibitors”, etc.). And keep in mind, you can’t argue a 1-3-year contract is “introductory pricing”). What’s more, Disney+, unlike every other service SVOD, is not even asking for incremental revenue from consumers – it’s looking to cannibalize the $3B Americans already spend each year buying Disney home video (even at $15 per month that’s 17MM subscriptions).
I am sure that by 2022 most discounts will go away and the core rate will jump to $9.99 – but this tells you about Disney’s commitment to winning and gaining scale quickly, how no one can afford to be timid, and the enormous potential of multi-subscription/category/product-line ecosystem in the digital era. And thus far, it’s working for Disney. [See MBVA - Disney+ Discounts, Content Approach, Early Traction]
#5 – Nothing Solves for Hits Other Than Hits
Even though Disney launched with many of the most popular films of all time, it’s clear that without The Mandalorian and the erroneously-named “Baby Yoda”, the service’s overall popularity, cultural impact, and total viewership of all of its titles would otherwise be (MUCH) lower. This doesn’t mean its subscribers will stay, continue to talk about, or watch Disney+ after The Mandalorian, but there’s nothing that marketing, technology, or back catalogue can do to substitute for having great, must-watch hit originals.
In the SVOD era, the value of a show grows exponentially with popularity (in the linear world, viewership and revenue were fairly linear). As a result, it doesn’t matter that The Mandalorian is one of the five most expensive shows ever made – it is good enough to affect a binary decision (get Disney+ versus skip Disney+) and lift the service’s entire portfolio each week. Until the poorly-named ‘Streaming Wars’ conclude, no one will ever regret overspending on a hit. [See my essay - The Mining of Media (or The "Streaming Wars" are Just a Battle)
#6 - You Can’t Hide from a Thin Catalogue, Only Lean into It
Although its titles are highly rewatchable, the catalogue still feels thin and it is easy to imagine that, even if consumers don’t unsubscribe (due to contracts or the low price), many will hit late Q1 and early Q2 and find they’ve little to watch and thus stop engaging. However, this is part of why the multi-year subscription, single SKU, and low price are so important.
The former means that for many subscribers, it will be years until they have to decide whether to “keep” Disney+, at which point the overall catalogue will have grown and more originals will release more frequently (it also gives Disney time to fix tech + UI/X).
And while Disney’s decision to collapse potential SVOD SKUs into a single offering is often considered at a brand-level (a single service for Disney+Pixar+Marvel+Star Wars+Nat Geo), it’s more important to consider how it collapsed segments (pre-k, kids, teens, general audiences) and formats (live-action sitcoms, animated shorts, feature films, nature documentaries). While different services would have unlocked a greater range in per household ARPU (i.e. some might have spent $25 per month), it also would have exacerbated churn and thinned library optics, while also complicating consumer assessments of per-service value. This isn’t a new lesson – this approach was Netflix’s original bet, and HBO Max is now applying the same playbook (it’s even devouring Crunchyroll, which is arguably the most successful and theoretically durable genre/niche SVOD) – but, again, it’s important to see it applies even to the most successful multi-genre/segment player.
It’s clear that the value of Disney+ (again, the best content in the world is available at below-to-bottom-of-the-market prices) is simply so great most consumers don’t seem to care if they go a few weeks without using it.
#7 – Success Depends on Hard Choices and Consumer Obsession That… Never Stops
It is also important to recognize how hard and deep Disney worked to build out its catalogue. Most obviously, this meant holding off lucrative licensing deals for several years just to be able to launch in Q4 2019. But when Disney+’s launch catalogue was announced in September, the US service was set to include only six of the 23 titles that comprised Disney’s signature franchise: The Marvel Cinematic Universe. The remaining films were variously obligated to other services from several years. While Disney had spent years trying to buy them back, it had failed (it was successful with reclaiming Star Wars from WarnerMedia, as well as most of its Pixar films).
As a result, it was a surprise when Disney+ launched with 16 of the 23 films. This included Avengers: Endgame, which meant Disney had broken the film’s home video release window, and every title not held by Netflix (which the company would never retrade early) or Sony/Paramount (which would have required three-to-four party agreements). This is clear show of customer obsession and commitment from Disney. These deals would have been incredibly expensive (Disney could probably have made several new movies instead of spending to get several year-old ones back a few years early). In fact, Disney probably ended up giving the licensee a profit on their original licensing fee (e.g. Disney sold it to service Y for $X, service Y used it for years but then gave it back for >$X). It also required Disney to be creative and flexible in how to get these deals done – to get its films back from Starz, for example, it agreed to promote the service to select customers on select occasions. While this doesn’t mean running commercials, it does mean bringing advertising into the service.
It's self-evident that having more blockbuster films and a more complete Marvel Cinematic Universe improves the Disney+ offering. However, it’s important to understand that the value here exceeds the content itself – it’s critical to the brand messaging, for example. By saying “Disney+Pixar+Marvel+Star Wars”, Disney+ was benefiting from both clear and compelling branding, but also misleading customers. Many would have been actively upset to find out “Marvel” really meant 6 of 23 films. 16 is still problematic, but it is still tolerable. What’s more, consumers likely place a premium on competition – having 21 of 21 Pixar films is probably more than 5% “better” than having 20 of 21. We will see if other services dig as deep (WarnerMedia has long-running deals that mean many of its Harry Potter and DC films are elsewhere).
#8 - Costly Anchor Licenses Deliver
Disney’s most expensive single licensing decision was likely The Simpson’s catalogue (probably $125-150MM+ per year). However, it has been enormously popular for the service – it’s often the top trending title and since launching, Disney has put up several new billboards that even add “+ The Simpsons” to its standard “Disney+Pixar+Marvel+Star Wars” logo. Even with the evidence of The Simpsons’ potential value (it is the longest running primetime show in US history, has more than 650 episodes, and is in the most watched SVOD genre: 22 minute sitcoms), it’s easy to imagine Disney balking at their biggest license being somewhat off-brand (literally and figuratively) – after all, it chose not to make it part of the official logo. However, it has doubtlessly helped “age up” the service and will ensure lots of additional (and potentially foundational) engagement for quarters (if not years) to come. I’m sure, given what it knows now, it’d have been willing to pay more. As I’ve written before, the value of content investments in SVOD scales exponentially – having a title with guaranteed consumption and tonnage is almost always worth it.
#9 – Global Live Ops at Scale Are Hard
Disney bought the most experienced, highest priced, and successful independent video delivery platform - and Disney+ still buckled on day one. And while most coverage of Disney+’s failures focused on consumer struggles to register and/or log-in, the platform’s failures were many and often very basic. On Disney+’s homepage, it was common to see cover art that was overlaid with text for a different title. In the “extras” tab for a given film, it was also common to see a thumbnail for deleted scene A, with text describing deleted scene B, but when you clicked it, you’d see deleted scene C. Disney also lacked core features such as highlighting unfinished titles on the homepage or title page in order to resume play (some of these were deliberately taken offline for launch).
The truth is, operating global digital live services/ops business is tough. To point, Netflix, Hulu and Microsoft’s Office 365 all had full-service outages in the 15 days following Disney+’s launch. And yet, no one said those companies “couldn’t do tech” (which isn’t to say Netflix and YouTube don’t have substantially better video stacks than BAM). However, it’s critical to remember that the importance of product & technology is negatively correlated with the intentionality of viewing.
#10 – Intentionality is Incredibly Valuable:
Content spend is not created equal. The most valuable content has strong “intentionality” – consumers feel they “must” watch it specifically, they’ll add a new service to do so, and they’ll even tolerate a poor UI/X and struggles to log-in (and to fork over money) if they have to. Although Disney+’s original and licensed content budget is far more modest than those of the services that launched years earlier, it performs as though it is 2-3x larger due to its intentionality. To this same end, while Disney+ feels “thin”, this is because of the title count optics and based on adult perceptions — most adults will only watch The Irishman once (or less); a kid will watch The Incredibles 2 fifty times over.
#11 – Ultimately, You Need to Solve a Consumer Need or Want
Every media company wants a scaled D2C SVOD service – that’s basically a tautology. But most of the services being launched in 2019/2020 are being launched to solve an internal business need, not any unmet audience wants. Netflix has earned a role in its customers lives because it was first to address the core audience wants for better access, lower prices, better experiences, and so on. It may not need to exist today, but it solved a consumer problem at scale – and so it will exist. Hulu offered consumers a single destination for most “next day” content, plus “trailing five episodes” and really took off when it shifted its focus to being a low-cost store of deep catalogue and rerun television (with 3x more TV episodes than Netflix and Amazon combined) – much of which was never before available online (let alone in one place). Through its aggregation of TVOD + third party subscriptions + connected TV devices, Amazon also earned space.
Most of the new entrants are actually creating problems so that their services can then solve them (i.e. taking content consumers already like watching on Netflix and Hulu and moving it elsewhere for a new fee and requiring a new app). It could be argued that this applies to Disney, too; many consumers would rather continue to watch Disney content on Netflix and without an additional fee. But there’s a strong case that this specific branding (Disney) with deep integration into other Disney content and experiences, plus a specialized UI, will be valued by consumers. It will solve a need for brand trust, brand access, and IP-based storytelling. It is the one place no parent need ever worry, and where every fan of its IP knows their love can be superserved. This is why it was critical for Disney to reclaim whatever content it could at any cost, and this is why the clarity of its messaging also resonated. Launching a new SVOD to contain “your” content, expanding an existing one so that it has more “value”, or reclaiming popular series doesn’t solve a consumer need or want. To succeed, every service has to.
Matthew Ball
