It may have taken the Walt Disney Company less than three years to overtake Netflix in streaming subscribers, but its road to dominance began more than 15 years ago with a carefully planned $100 billion (81 billion pounds sterling) to revitalize his empire for 21st century viewers.
The combination of Netflix preparing a global audience for the streaming age and the fortuitous launch of Disney+ at the start of the pandemic, a service populated by crown jewel franchises like Star Wars and Marvel, transformed the which has been seen as Disney+’s disadvantage in the past. unprecedented dizzying growth.
Just 16 months after launch, a budget-friendly Disney+ reached 100 million subscribers, a feat that took Netflix a decade to achieve, and combined with US streaming services Hulu and ESPN+, the company has now advanced with 222 million subscribers.
When it comes to winning the streaming world war, content is king. Disney, the owner of the most successful Hollywood film and television studio in history, is home to many of the world’s biggest and most coveted franchises and characters thanks to a multibillion-dollar buyout that began in the 1990s.
Still from the first Toy Story movie in 1995. Photo: Walt Disney/Pixar/Sportsphoto/Allstar
In 2006, a year before Netflix made the switch from DVD-by-mail to streaming that would eventually revolutionize traditional TV viewing, Disney spent $7.4 billion buying Pixar from Apple founder Steve Jobs, the animated hit factory behind Toy Story, Finding Nemo and The Incredibles.
This was followed in 2009 by the surprise $4 billion purchase of the Marvel Comics superhero universe, which brought in a host of characters including Iron Man and Captain America, taking Disney into new live-action territory .
The third transformative purchase came when Disney bought Lucasfilm from George Lucas, the production company behind the Star Wars and Indiana Jones franchises, for $4 billion in 2012. In each case, the deals were criticized by investors in the city, but it’s been Disney who’s been laughing all the way to the bank.
A still from Avengers: Endgame in 2019. Photo: Everett Collection Inc/Alamy
In 2008, just before the release of its first Marvel film, Iron Man starring Robert Downey Jr., Disney’s stock price was around $15, valuing the business at $26 billion. The world’s largest entertainment company is now trading at $112 per share, giving it a market value of $205 billion, nearly double that of Netflix.
“Disney has been successful in delivering a steady stream of high-impact releases straight from the big screen, while expanding its franchises for streaming-only content,” said Richard Broughton, chief executive of the market research firm Ampere Analysis.
“Netflix hasn’t had as many big franchise hits as they would have liked. Stranger Things has been the biggest, and to a lesser extent maybe The Witcher and The Crown, but they just don’t have assets on the scale of Marvel, Star Wars or Pixar “, added.
In 2018, big players such as Warner Bros and Comcast, which owns NBC Universal and Sky, began to stop licensing content to Netflix and each other in preparation for launching their own streaming services. Then Disney struck again, paying $71 billion for Rupert Murdoch’s entertainment business, 21st Century Fox.
The deal, which included film and television studio 20th Century Fox Hollywood and the FX Network, added a slew of crown jewel assets including Deadpool, Avatar, Titanic, The Simpsons and Modern Family.
It also included Fox’s ownership of streaming service Hotstar in India, with its tens of millions of subscribers, which fueled Disney+’s growth rate when it launched in late 2019.
The service, which is expected to lose millions of customers as Disney loses the rights to broadcast Indian Premier League cricket, accounts for 58.4 million of Disney+’s 152 million global subscribers. However, the low-cost model means users pay an average of just $1.20 per month.
Mumbai Indians celebrate after defeating Chennai Super Kings in the 2019 Indian Premier League final. Photo: Robert Cianflone/Getty Images
Disney aggressively predicts that Disney+ will overtake Netflix by 2024 as it continues in high growth mode. It added 14.4 million subscribers in the second quarter, beating analysts’ expectations, while Netflix struggled this year with its first subscriber loss in a decade.
“Essentially, both companies are in different phases of growth,” said Paolo Pescatore, media and telecommunications analyst at PP Foresight. “Disney is still in stealth startup mode when it comes to direct-to-consumer services. There are still millions of users to acquire as Disney continues to expand into new markets and launch new blockbuster shows.”
While Netflix is already available worldwide except for China, Crimea, North Korea, Russia and Syria, Disney+ is still in the process of launching internationally. It recently announced its availability in 60 more countries and territories.
Disney maintains that Disney+ is on track to break even by 2024, but staying on top is an extremely expensive business.
Competition for subscribers has sparked an unsustainable content war, while stretched family budgets have forced consumers to cut back on entertainment services. Netflix will spend about $17 billion creating and licensing movies and TV shows this year, and has another $23 billion on its balance sheet for long-term content costs, plus $14.8 billion in debt to long term.
Disney is spending $30 billion on content across its TV, movie and streaming services this year, which includes expensive live sports rights like the NFL for ESPN. Disney said it had lost more than $7 billion in funding from Disney+ since launch.
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After pursuing a bargain-price strategy to drive growth, Disney is now following Netflix in instituting significant price hikes, starting in the US, as investors’ attention shifts to costs and profitability.
Both companies will launch partially ad-funded subscription options to try to attract more cost-conscious consumers as subscriber and revenue growth in the global streaming market slows.
For now, Netflix remains the largest global streaming service, and Ampere analysts predict a longer timetable for Disney+ to reach global parity.
“Disney’s growth will slow down in the next few years,” says Broughton. “Factors include the loss of Indian Premier League rights and the need to increase prices (our data suggests subscribers are now canceling entertainment services to cut costs) which will contribute to a similar slowdown to what we’re seeing at Netflix. We believe Disney+ and Netflix will match as the largest services in the world with 240 million global subscribers by 2027.”