In a world awashed in streaming video, Disney no longer needs to rely on Comcast and DirecTV and a host of international distributors to deliver its TV shows and (post-theatrical) movies. Netflix eliminated middleman distributors, slashed the monthly price (compared with cable) for a robust content package and made all of its content available 24/7 in a commercial-free, on-demand format.
But as with any historic shift, change won’t come easily — or cheaply. To build their own platforms, Disney, AT&T and others will have to invest billions of dollars in high-end content while at the same time forgoing much if not all of the traditional licensing revenue that they would have commanded by selling rights to third-party networks and distributors.
Moreover, the emphasis on launching attractive DTC alternatives will likely hasten the pace of cord cutting. That will only put more pressure on the billions of dollars the congloms take in annually in carriage fees from cable operators for channels that may no longer be first in line for the hottest properties coming from their parent studios.
The share price of the world’s biggest entertainment company has surged by more than a quarter over the past year, making for a $260bn (£214bn) stock market valuation as it continues to dominate cinemas while plotting its streaming future with the launch of its rival to Netflix later this year.
The company is reaping the benefits of a six-year buying spree of top-quality-content businesses, snapping up the Toy Story maker Pixar ($7.4bn), Marvel Studios ($4bn), and Star Wars maker Lucasfilm ($4bn) between 2006 and 2012.
However, Disney’s upcoming results are likely to show a drop in profits as it spends heavily on breaking into the global streaming market, dominated by Netflix and Amazon, with its rival Disney+ service scheduled to launch in the US on 12 November.
Disney has priced it at $6.99, close to half of Netflix US’s most popular tier, and is willing to swallow hundreds of millions in lost licensing revenue until it turns its first expected profit in 2024.
In july, $18bn was wiped off the value of Netflix after it lost subscribers in its biggest market, the US, for the first time in eight years. Competition is set to further intensify over the next year as streaming services from NBC Universal, AT&T’s HBO Max and Apple are launched.