Say this for Disney - in just the past couple of years or so it has moved to cover virtually every bet for how online video might impact the company in the future.
With its Maker Studios acquisition, Disney expanded into YouTube-style content creation for kids and millennials. With DisneyLife, it’s moving into SVOD entertainment beyond its pivotal output deal with Netflix. Now with Hulu, it’s addressing cord-cutting and the potential of skinny bundles (as well as with deals with DirecTV Now, Sling TV and PlayStation Vue). And finally, with its new $1 billion BAMTech investment, it’s adding platform capabilities for direct-to-consumer live sports streaming. Plus, with the forthcoming ESPN OTT service, it will test its own direct-to-consumer sports offering.
With all of these different moves, Disney is not just searching for new opportunities and opening up new options, it’s reducing the likelihood of being caught unaware of viewer shifts or being unable to quickly capitalize on them. I give Disney a lot of credit for balancing these new initiatives with respect for its existing business model, which of course heavily relies on partnerships with pay-TV operators.
That respect was on full display, once again, in Disney’s earnings call yesterday, where Chairman and CEO Bob Iger said right up front:
“As we look at our businesses and the marketplace, two things are clear. The multichannel bundle delivers the most value to us and remains a great value proposition to consumers. Therefore, our top priority is to support it and to do what we can to maintain or enhance its value to customers. We also know that new platforms and new entrance in the digital video space are offering consumers more flexibility in variety with exciting new products and impressive user experiences. And we must create or take advantage of these new opportunities in ways that are complementary to the multichannel offering.”
Perhaps most important is that when it comes to distributing its cable networks, including the crown jewel, ESPN, Disney isn’t doing anything to advantage new entrants at the expense of current partners. Iger later said, “…the pricing of our networks is similar on the over-the-top networks than it is on the MVPD platforms.” So, if skinny bundles want to price themselves aggressively, it will come out of their margins, not Disney’s. And to the extent that skinny bundles do indeed cannibalize full multichannel offerings, Disney is protected.
No doubt that thinking also applies to the new ESPN OTT service, which will be an amalgam of games that didn’t merit ESPN’s air time but to which ESPN and MLBAM already have rights. So in other words, NO new rights expenses that would hit margins. Rather, Disney is just trying to squeeze new revenue from existing deals. How much subscriber appetite there is for this lesser fare remains to be seen, but once again, by dipping a toe in the water, Disney ensures that it at least understands the emerging consumer dynamics.
There’s one other aspect of the BAMTech deal, which could be interesting to watch, depending how things play out over the next couple of years. Last year, when MLBAM landed the NHL as a customer and provided it equity in the new BAMTech spin-off, I wrote that it could become a powerful new force in future sports rights negotiations, perhaps competing with established sports TV networks. Whereas traditionally, rights deals were simply awarded to the highest bidder, I speculated that with leagues wanting to create the most immersive fan experiences, BAMTech might be in a position to add a new influence to the deals, with technology that translated into new league loyalty and revenues.
I still believe that BAMTech is in that position, but the twist now is that, assuming Disney eventually exercises its right to fully acquire BAMTech, it will have brought those capabilities fully in-house, in turn helping ESPN to create new competitive advantages relative to other sports networks. Once again, the BAMTech deal shows how Disney may foresee more subtle potential threats to ESPN and is moving to address them.
Having forged ahead aggressively in online video content creation and delivery/management, the only area Disney has not yet planted a flag in is monetization. With other major media companies acquiring video ad tech providers (e.g. Comcast-FreeWheel, RTL-SpotX, Facebook-LiveRail, etc.) and broader industry consolidation underway, it seems like only a matter of time until Disney makes a move in video ad tech as well.