Apple and Disney belatedly sever corporate ties

Disney CEO Bob Iger has been on the Apple board for eight years but, with the two companies now competing directly in the SVOD market, he has resigned.

Last week Apple officially launched its Apple TV+ subscription video on demand service last week, thus placing it in direct competition with Disney, which is also set to get into the SVOD game with, you guessed it, Disney+. For some reason the two companies left it until the very last minute for Iger to clear off, despite the two competing service having been in development for months.

“On September 10, 2019, Bob Iger resigned from the Board of Directors of Apple Inc,” said the abrupt, unsentimental Apple SEC filing. The Hollywood Reporter got a bit more comment on the matter, with Iger saying how great Apple is and Apple returning the compliment, which is nice. Whether relations will remain so cordial when they’re trying to steal SVOD market share from each other remains to be seen. For some reason Iger is still isted as a board member on the Apple site.

While Iger has been on the Apple board, links between the two companies go a lot further back than that. Apple founder Steve jobs was also the founder of Pixar Animation and thus become one of the largest Disney shareholder when it bought Pixar in 2006. Jobs also joined the Disney board at that time and stayed until his death in 2011.

As companies Apple and Disney have a lot in common. They both position themselves as premium consumer brands and invest heavily in their brand image. They also have a reputation for wanting to control everything around their product offering and image, so it’s not at all surprising that they would want to have their own SVOD services offering only their own stuff rather than rely on third parties for distribution or content.

One other big thing they have in common is a desire to be viewed as wholesome, family companies, which creates the possibility that they will end up producing fairly similar content. Right now Disney is mainly about feature-length movies while Apple seems to be focusing more in TV-style stuff. But that distinction could easily change over the years and, if it does, these two American icons will be fighting for the same wholesome dollar.

Disney+ to launch in November as streaming segment starts to look crowded

Disney has announced it will launch its video streaming service in Australia, New Zealand, Canada and the Netherlands alongside the US in November, but how much appetite is there in the market?

This is the big question which the streaming world is facing; how many streaming services can be introduced before saturation point is reached in the profitable segment?

Alongside the likes of Netflix, Prime Video, Hulu, Now TV, YouTube, Fubo, Sling TV and several other niche services such as Nickelodeon and Fox News, Disney+, HBO Max and Apple TV will be fighting for the consumers attention. With so much fragmentation, you have to wonder whether the first-golden age for the streaming segment is coming to a close.

Today, Disney+ has given concrete plans for its launch, while Apple has been the subject of rumours. At Disney, the streaming service will debut in the US at the beginning of November, in Canada and the Netherlands on 12th November and in Australia and New Zealand on the 19th November.

Looking at the launch, Disney does seem to be ticking the right boxes in terms of content, it already owns an impressive library and has got some promising commitments to original titles, but you have to wonder about everything else.

Let start with experience. The likes of Hulu, Netflix and Prime Video have been honing their platforms for some time, and this could be one of the defining feature when it comes to winning the scrap for long-term subscribers. One of the attractive elements of OTT streaming services are the month-by-month commitment; customers can up and leave very quickly should they find issue with the service and getting them back will be tough.

Disney does not have any experience when it comes to creating or managing these platforms, whereas rivals have got years behind them. This could be a very important factor, especially when it comes to mobile.

Another challenge Disney will face, and we are surprised it hasn’t done more to address it on launch, is the brand awareness of the service. Fighting for eyeballs is a very expensive and tricky game to play, and while Disney has one of the most prominent brands on the planet, it has zero credibility when it comes to the delivery of digital content. Some might also question the breadth and depth of content which the library will contain.

This is why we are surprised Disney isn’t launching the service through local partnerships. Netflix and Amazon have already shown how powerful partnerships can be, embedding services in existing content aggregator platforms is an excellent way to win eyeballs and tempt subscriptions. This would have been an obvious route to take, leaning on the credibility and billing experience of a local partner, a telco for example.

That said, it is not too late. The service will be expanded to every major market by the end of the year, Disney claims, and there certainly are some multi-national telcos who could help generate exposure and credibility in some major markets. Vodafone or Deutsche Telekom could offer excellent exposure across Europe, as would Telefonica, as well as the LATAM markets. These partnerships could offer a direct, trusted and validated link to local consumers.

Another element to consider for the telco partnerships is the delivery of content over mobile. This is a different dynamic than the traditional means of viewing content, and few can offer the same expertise as the telcos. Mobile could be a significant tool for the armoury moving forward, and it will be interesting to see how the experience is received by consumers.

However, this does not address the wider issue which is lurking on the horizon; customer fragmentation.

When there were only two or three major services available, consumer wallets might have been able to tolerate numerous subscriptions. However, it is quickly getting to a point where choices will have to be made, as these services are not priced that cheaply anymore.

£6.99 or £10.99 isn’t realistically that much, however the quality of the services might decline. In years gone, these services were aggregators, but with the content owners clawing back titles off rival platforms, the libraries will get smaller. With Disney for example, all the Marvel content will be taken back, and with HBO’s service, titles like Friends will be removing from wider distribution.

What is worth noting is that original content could replace some of these titles, however, the pursuit of the next Breaking Bad or Game of Thrones is a perilous pursuit; not everything will be a winner, or appeal to a wide enough audience. There is a risk the quality of content could degrade as the streaming segment becomes more fragmented.

This is of course a negative view on the quality of content, the increased competition might welcome in a new era of quality programming. However, there are a lot of duds which are launched onto the unsuspecting world.

It is also worth noting that there is plenty of room for growth across the world. Markets like the US, UK or Germany might not present much greenfield growth for new subscribers, but there are still a few more hundred million in developed and developing markets to capture profits from.

Since Netflix changed the entertainment world with its streaming offering, hoovering up revenues, many have tried to replicate the success. You have to wonder how many services the segment can tolerate and remain the bountiful bonanza which many investors have been promised.

Disney complicates video streaming market with $13 per month bundle

Content giant Disney has unveiled what it presumably hopes will be a Netflix-busting bundle of Disney+ ESPN+ and Hulu in the US.

Disney+, the core streaming service for Disney movies and other video content, had previously been announced at a cost of $7 per month. Disney also owns the majority of sports content network ESPN, and general TV content service Hulu, so it’s bundling them together with Disney+ for a grand total monthly cost of $13 – five bucks less then they cost individually and coincidently exactly the same as regular Netflix costs in the US.

“I’m pleased to announce that in the United States, consumers will be able to subscribe to a bundle of Disney+, ESPN+ and ad-supported Hulu for $12.99 a month,” said Disney CEO Bob Iger on the company’s recent earnings call. “The bundle will be available on our November 12 launch date.”

Commentary on this seems to be universally positive, with many observing that it’s very good value for money.

“The move throws down the gauntlet to Netflix and other rival services,” said Tech, Media and Telco Analyst Paolo Pescatore. “For sure it is competitively priced and seeks to reduce fragmentation. Initially, it seems that Disney is looking for scale but will need to increase revenue to recoup the significant investment. Consumers have some tough decisions ahead as they can’t sign up to all the streaming services.”

Streaming platforms are starting to become less attractive

Netflix started as a platform where old-series could be relived, but now with rivals aiming to replicate the success of the streaming giant, the content world is becoming increasingly fragmented.

The big question which remains is how big is the consumers appetite for content? How many streaming subscriptions are users willing to tolerate?

The news which hit the headlines this morning concerned Hulu. Disney has come to an agreement to purchase Comcast’s stake in the streaming service, for at least $5.8 billion, in a divorce proceeding which will take five years. This transaction follows the confirmation AT&T sold its 10% stake in Hulu to Disney last month.

Disney consolidating control of Hulu is not much of a surprise to those in the industry, but fan favourites disappearing from the various different streaming services might shock a few consumers.

AT&T has also confirmed it will be pulling WarnerMedia content, such as Friends and ER, from rival’s platforms. The Office, one of the most popular titles on Netflix, will be pulled by owner NBCUniversal. The series, and other NBCUniversal content, will also be pulled from Hulu in favour of parent-company Comcast’s streaming service which will launch next year. Disney will also be pulling its headline content, the Marvel movie franchise for example, back behind its own paywall. Amazon Prime has its own exclusive originals, and YouTube has ambitions with this model as well.

Over the next 12-18 months, content will be pulled back away from the licensing deals to reside only on the owners streaming platform. Users will find the content world which they have come to love is quickly going to change. Some might have presumed the cord-cutting era was one of openness, a stark contrast to one of exclusivity in traditional premium media, but it does seem to be heading back that direction.

It is perfectly reasonable to understand why this is being done. These are assets which need to be monetized, and the subscription model is clearly being favoured over the licensing one. WarnerMedia, 21st Century Fox, AT&T, Comcast and Disney might have had an interest in the licensing model in by-gone years, but following the consolidation buzz, it has become increasingly popular to create another streaming service to add into the mix.

The issue which may appear on the horizon is the fragmented nature of the streaming world; consumers wallets are only so thick, how many streaming services can the market handle?

The test over the next couple of months, or years, will be the quality of original programming. Netflix grew its original audience through a library of shows other content companies were ignoring, but today’s mission is completely different; original and local content is driving the agenda.

The question is whether other providers will be able to provide the same quality? With subscription revenue being spread thinner across multiple providers, will there be enough money flowing into the coffers to fuel the creation of this content? Will the pressures of increased competition decrease overall quality?

Today it is very easy to find the best and deepest range of content available. You might have to subscribe to more than one service, but at the moment consumers are able to afford it. Tomorrow might be a different case. The more streaming services in the market and the more fragmented the content, the more decisions consumers will have to made. Having 4/5 services is probably unreasonable. And we’re only talking about quality of experience, the mess of different discovery engines is another topic.

The question which remains is whether the economics of a fragmented content segment can support the original content dream which has been promised to consumers, or whether the old-world of low-quality, low-budget, limited and repetitive content returns. Soon enough Disney+ will launch, as will Comcast’s streaming service, to add to Hulu, Netflix, DirecTV, Amazon Prime, YouTube’s premium service, and any others which might be in the mix.

Content will become fragmented, thinner on the platforms, before consumers wallets become strained. How long the budget for content will last in this scenario remains to be seen as executives look to cut corners and increase profitability. It’s hard to see how current trends are going to benefit consumers.

Disney+ streaming service looking good ahead of November launch

Disney might have a lot of ground to catch up on the established players in the streaming world, but its offering does look pretty competitive.

Priced at $6.99 per month, the streaming service will be home to an armoury of content, old and new, launching in November. The platform will also give customers the option to bundle in ESPN+ and Hulu services, creating the depth and breadth of content which one day might be able to compete with Netflix.

“Disney+ marks a bold step forward in an exciting new era for our company – one in which consumers will have a direct connection to the incredible array of creative content that is The Walt Disney Company’s hallmark,” said CEO Bob Iger.

“We are confident that the combination of our unrivalled storytelling, beloved brands, iconic franchises, and cutting-edge technology will make Disney+ a standout in the marketplace and deliver significant value for consumers and shareholders alike.”

Perhaps one of the most useful features of the platform will be the downloadable content. Every title will be available for subscribers to download and watch offline, a move which might push the other platforms in this direction. Netflix is another which has introduced this feature, though it is limited to date.

Alongside properties such as Pixar, Marvel and Star Wars, the content library will also include all of Disney’s family favourite films, all 30 seasons of The Simpsons, Fox titles like The Sound of Music, The Princess Bride and Malcolm in the Middle, and original content leaning on well-known assets, such as Marvel Studios’ series Loki starring Tom Hiddleston.

This is perhaps the worry many commentators have had surrounding the Disney entry into the streaming world, as while it certainly does have attractive assets, the breadth and depth of content does not match Netflix. This is one of the reasons Netflix is dominating the streaming world, and perhaps why Sky has continued to maintain its leadership position in the UK premium TV segment; content to serve all purposes, audiences and moods.

Disney will find success in the early days, such is the power of the brand and the curiosity of consumers, $6.99 is cheap enough to allow for curiosity, but long-term success will depend on whether the team are bold enough with content acquisition and curation. Netflix is incredibly aggressive in securing and funding a wide range of international and locally-tailored content, and Disney will have to match these actions to maintain success in the long-run.

That said, the team is promising big things. By the end of year five, Disney expects 50 original series, 10,000 past episodes and more than 500 movies in the content library. These numbers certainly sound promising, as long as the content meets user expectations.

What we don’t know right now is much about the platform itself. Disney has said the content will be available through all devices and has also named PS4 and Roku as launch partners. The idea is to enable users to view the content wherever desired, but whether the platform will be any good we’ll only know in November.

This is where the leaders in the content world have made their presence known. Netflix and Sky for example have intuitive and simple platforms, whereas some are difficult to navigate or do not look pleasing on the eye. This will have a negative impact on user experience and considering how many streaming options are going to be on the market, this will go some way in deciding Disney’s success.

November will come around quicker than many will hope for, but Disney is certainly giving itself a good start in the streaming world with what looks like an impressive offering.

Don’t expect upstarts to knock Netflix off its throne – report

A new report from UK analyst firm Re-Think has painted a gloomy picture for those attempting to muscle into Netflix’s dominance in the streaming world.

With the likes of AT&T, Disney and Comcast all attempting to diversify revenues, the riches being raked in by Netflix in the entertainment streaming market must look very tempting, though the rewards will not come easily. This is not to say there is not room for new services, the price point creates an opportunity for multiple service providers in a single household, but Re-Think is predicting Netflix will continue to hoover up profits.

“Despite moves by major studio conglomerates come 2024 Netflix will remain the dominant force in streaming, earning more streaming revenue than the big three put together,” the report states. “Its market share will dilute from 63% last year to 52% by 2024, but our forecasts show that Netflix cannot be shifted from the number one spot.”

Despite going through years of dredge, swallowing the ‘reward’ of being a loss leader in an emerging market, Netflix shareholders are beginning to see the breaking dawn. During the last earnings call, CEO Reed Hastings proudly told shareholders revenues had grown 35% to $16 billion across 2018, with operating profits almost doubling to $1.6 billion. The business finished with 139 million paying memberships, up 29 million across the year.

139 million might sound like an incredible number already, but then you have to consider whether this is just the beginning. International subscriptions, outside of the US market, accounted for approximately 63% of the total offering plenty of headroom for growth. The team is forecasting an additional 9 million additional subscriptions over Q1 alone.

This is the challenge which the upstarts are facing. Not only is this a company which is sitting very comfortably in the number one spot, but it has momentum which it is doubling down on. At IBC last year, Maria Ferreras, VP of EMEA Business Development at Netflix pointed towards partnerships with telcos (carrier billing), more original and local content, as well as launching in new markets to continue the growth.

During the results call, Hastings confirmed these plans were scaling up. The relationships with local partners were working well, and the team were searching for more, while more investment was being directed towards content. Investments over the last twelve months totalled $7.5 billion, and this number will only grow. It probably won’t be on the same trajectory as previous years, but the number of big-budget titles are visibly increasing on the platform.

“The extraordinary success of Netflix has got it lined up in the sights of the big studios and content houses and the big question now is how well it will stand up to that assault on multiple fronts,” the report states.

Hulu is an established platform, as is Amazon Prime, but with Disney entering the market with an impressive portfolio, while Comcast is pushing forward, and AT&T will soon start making waves with its $85 billion acquisition of Time Warner. There is a lot of competition emerging on the horizon, but these the upstarts have a lot of distractions.

Over the next couple of months, we see two developments which will worth keeping an eye on in this space. Firstly, the protection of traditional TV services and also the consumer appetite for AVoD services, streaming with advertising.

Advertising is clearly big business. In the UK, you only have to look at the success of Sky as the leader in the premium content space as an example. Like the social media giants, Sky has created a sophisticated advertising platform, AdSmart, allowing advertisers to drive engagement through hyper-targeted campaigns. This model continues to work with Sky, but perhaps it is living on borrowed time.

The Netflix model is the opposite. An upfront payment and the promise of no advertising to break-up shows or movies on the platform. The more people who subscribe to Netflix, or similar platforms, the lower the tolerance for adverts will become. Netflix might be missing a cash generation opportunity, but it also might be irrevocably changing the industry. This will not happen overnight, but it might be the light at the end of the tunnel.

The second point, protecting legacy services, is going to be a tricky one. The likes of Comcast and AT&T will have cash revenues to worry about as they effectively cannibalise themselves in search of the OTT dream. Looking at the revenues on the traditional TV services, Re-Think is forecasting AT&T will decline from $64.7 billion in 2018 to $47.7 billion in 2024, Comcast from $25.8 billion to $20 billion and Disney from $11.5 billion to $9 billion.

Should these companies encourage users to migrate to their streaming alternatives, the decline could be even steeper. This might give the streaming service more opportunity to succeed in an increasingly fragmented market, but investors might get spooked. It’s a catch-22 situation, with one option killing revenues but the other holding back a more future-proofed concept.

The challenges for those trying to break Netflix dominance is not only dealing with the beast’s popularity, but also handling the internal politics of change. This might be much more of a challenge, especially when you consider the traditional culture of the challengers.

Ultimately the feedback here is relatively simple; Netflix is king and don’t expect the usurpers to wobble the throne too much.

Outfoxed Comcast looks to the Sky

US telco conglomerate Comcast has decided it can’t be bothered with 21st Century Fox but is still really keen on Sky.

Apparently determined to complicate things for media rival Disney at every possible opportunity, Comcast seems to have decided that forcing Disney to come up with an extra $19 billion to get hold  of Fox is enough for now. The real fun will now consist of making sure Disney doesn’t get hold of Sky when the Fox deal goes through.

Disney bid $52.4 billion for Fox at the end of last year, but Comcast decided to throw a spanner in the works by offering $55 billion for it in June. This forced Disney to come back with a $71.3 billion offer soon after, which turned out to be enough to make Comcast throw in its cards. “Comcast does not intend to pursue further the acquisition of the Twenty-First Century Fox assets and, instead, will focus on our recommended offer for Sky,” said the Comcast announcement.

This seemed to be the likely outcome when Comcast quickly escalated the bidding war for Sky last week. An intriguing aspect of this bid is that, if it succeeds, Comcast and Disney will have to coexist in the running of Sky, since Fox already owns 40% of it. It’s hard to see how they could sustain that bizarre symbiosis, so something will have to give. On the other hand Disney could just decide to hold on for a bit just to annoy Comcast.

Digital TV Europe did a good analysis of the various plot twists back when the Comcast bid for Fox was just a rumour, which you can read here.

US DoJ throws $85 billion spanner in the works of AT&T-Time Warner

The US Department of Justice has decided to appeal the June 12 court ruling allowing AT&T’s $85 billion acquisition of Time Warner, it announced late on Thursday.

In a brief Notice of Appeal filed on July 12, the DoJ notified the District Court that it intends to bring the case to the Court of Appeals against the ruling that will allow AT&T’s planned acquisition of Time Warner to go ahead with no restrictions.

The US government, which had until August 12 to ponder an appeal, took a month to decide it would lodge an objection to the mega-acquisition. US entertainment industry news site Deadline sourced a copy of the Notice, signed by Craig Conrath, who was leading the government’s legal team during the trial. It doesn’t elaborate on the grounds upon which the appeal would be lodged, but the decision to appeal seems to have caught AT&T by surprise.

“The Court’s decision could hardly have been more thorough, fact-based, and well-reasoned,” David McAtee, the operator’s General Counsel, said in a statement. “While the losing party in litigation always has the right to appeal if it wishes, we are surprised that the DOJ has chosen to do so under these circumstances.  We are ready to defend the Court’s decision at the D.C. Circuit Court of Appeals,” he blustered.

The ramifications of the potential appeal could hardly be greater — not only regarding the future of a newly-created WarnerMedia business, and whether it might need to decouple from its parent company, but also for the whole telecom and media industries. The boardrooms of Comcast and Disney will be full of sweaty palms (yuk!), as the outcome of the appeal will set a precedent for future vertical integration deals, including their bidding war for 21st Century Fox.

If the DoJ was to win the appeal, the US Solicitor General could bring the case to the Supreme Court, where the judges generally siding with President Trump are in the majority. Since the days when he was a candidate, Mr. Trump has been a vocal opponent to the merger, citing the danger of “too much concentration of power in the hands of too few.” However, such a decision would not be without a twist: Eriq Gardner, the Senior Editor at The Hollywood Report, discovered in a disclosure paper that John Roberts Jr, one of the Supreme Court Chief Justices, still holds Time Warner shares.

AT&T has been moving very fast after the June 12 ruling to integrate the two companies, from appointing executives to stamping its authorities over HBO, although it has decided to leave Turner Broadcasting, the owner of CNN among other assets, independent until February 2019. However, it has already broken at least one promise related to the deal: instead of making the service more affordable, it just raised the monthly bill for its DirecTV Now service by $5.

Fox strikes back at Comcast in Sky bidding war

21st Century Fox has put in an increased offer to buy those bits of Sky it doesn’t already own, beating an earlier counter-offer from Comcast.

Fox bid £10.75 per share for Sky back at the end of 2016, but the bid was stalled by UK regulators taking a closer look at it to see what effect it would have on media plurality in the UK. They eventually concluded the potential acquisition could go ahead so long as Sky news is sold, to ensure its independence.

By that time, however, US cable and media giant Comcast had taken an interest and in April of this year counter-bid to the tune of £12.50 per share. After mulling this over for a few weeks Fox has decided Sky is worth fighting for and has raised its own bid to £14 per share – valuing Sky at around £24.5 billion.

“As the founding shareholder of Sky, we have remained deeply committed to bringing these two organizations together to create a world-class business positioned to deliver the very best entertainment experiences well into the future,” said a Fox statement. “We strongly believe that a combined 21CF and Sky will be a powerful driver for the continued growth and vibrancy of the UK and broader global creative industries.

“The enhanced scale and capabilities of the combination will enrich Sky’s ability to continue on its mission for years to come, especially at a time of dynamic change in our industry. This transformative transaction will position Sky so that it can continue to compete within an environment that now includes some of the largest companies in the world, but none of whom have demonstrated the same local depth of investment and commitment to the UK and to Europe.

“We said when we announced our proposed acquisition of Sky that we were firmly committed to UK’s creative industries and the contribution they make to the UK economy. We remain committed to the UK and believe that our offer for Sky will bring the best value for all the company’s stakeholders and are delighted that the Independent Board of Sky has recommended our offer to its shareholders.”

Apparently some UK politician still need to give such a deal their seal of approval, something that is expected to happen later this week. Fox is itself in the process of being acquired by Disney and maybe the imminent arrival of a wealthy parent that competes directly with Comcast probably contributes to its willingness to persist with a bidding war.