• As Disney Moves Into SVOD, It is Navigating New Terrain

    Last week, the WSJ ran two articles that underscore how Disney is navigating new terrain as it prepares to launch Disney+ in November. The articles also showcase how convoluted relationships among major media and technology companies are going to become over fights for shifting leverage.

    One article described how Disney has continued to ban advertising from Netflix on its entertainment TV networks (ESPN is still ok) even though it will accept ads from other SVOD providers. The other article described Disney’s negotiations with Amazon over how much ad inventory Amazon should be allocated to sell in Disney’s apps that run on Fire TV. The article noted no deal at all has been reached for Disney+ to be carried on Fire TV, as the SVOD service’s launch date nears.

    Since the announcement of Disney+ there has been tons of speculation about what, if any, impact it will have on Netflix subscriptions. Some believe most consumers will make room for both, while others believe there will be a tradeoff. By banning Netflix’s ads, Disney appears to be more in the latter camp, or at least wants to mitigate the potential risk, for now.

    According to an estimate from iSpot.TV included in the WSJ article, Disney’s entertainment networks may have pulled in about $12-13 million in Netflix ad spending in 2018. That’s a drop in the bucket for Disney, making banning Netflix ads a relatively minor decision.

    A bigger decision is how to strike a deal with Amazon to ensure Disney+ is carried on Fire TV devices. A related question that wasn’t raised in the WSJ article is whether Disney+ (or a version of it) should be available in Amazon’s Prime Video Channels program which already includes HBO, Showtime, CBS All Access and dozens of other SVOD services.

    Fire TVs, Rokus and other connected TVs are becoming the locus for millions of viewers’ living room experiences, as cord-cutting continues to accelerate. If Disney+ launches without being on Fire TV that will create an obstacle for a meaningful number of prospective subscribers. It will also make Disney+ look like an outlier since other SVOD services have long been available across all major devices. Conversely, Amazon doesn’t want to have Fire TV denied Disney+ which is going to be very popular this holiday season.

    Disney+ won’t include advertising, so the root of negotiation appears to be what percentage of ads in Disney’s other popular apps that are on Fire TV should be allocated to Amazon to sell. These ads are becoming a critical revenue stream with recent research indicating connected TVs now account for at least 50% or more of all video ad impressions. Monetizing connected TV and mobile device viewing is essential for content providers as linear viewing declines.

    The WSJ article describes the Disney app ad inventory Amazon is seeking to sell being in the 30-40% range with Disney countering with 10%. Amazon has reportedly grown its annual ad revenue to $10 billion, taking advantage of its vast shopper data sets and multiple ad formats. Video ads are no doubt a high priority for Amazon and so Disney offers a big opportunity. The short-term need to sort out Disney+/Fire TV carriage enhances Amazon’s current leverage.

    All of this is yet another window how much Disney’s business is going to be changing and how many of the industry’s rules it needs it will help re-write. Carrying a competitor’s ads, sharing ad inventory with an important device platform (that also happens to be a video competitor), prioritizing certain apps above others - Disney is balancing all of these as it forges ahead with Disney+. Other industry players will be paying close attention.