About Disney’s plan to beat Netflix

The new Disney OTT service is coming in 2019 and there were some interesting takeaways from the most recent earnings call:

Disney thinks it has a big advantage in its coming war with Netflix — but Wall Street is split on whether it has the right battle strategy

It’s not a big surprise that Wall Street analysts disagree over Disney’s strategy. A public company needs scale and growth quickly, regardless of the business they’re in. But I think Disney’s strategy is absolutely spot on for any OTT service for (surprise!) three reasons:

Quality over quantity

You need to convince each and every subscriber that they need to show up and stay a long time. How? With exclusive, original, premium content they can’t get anywhere else. Podcasting has a lot of lessons here as a medium that continues to grow and thrive on the strength of a unique product. Disney — with its catalog of its own catalog as well as that of Pixar, Marvel and Star Wars — fits that description to a tee. Netflix is doing a great job of developing its own slate of original content but Disney is the gold standard here, and their titles stand the test of time.

Subscribers first, revenue second

Prioritize audience growth first and price your product to sell. Go for volume. You can always raise the price later but you can’t lower it without admitting to the market that your product isn’t worth what you thought it was worth. One of the key comments about the Disney plan comes from RBC analyst Steven Cahall:

“‘You could argue [Disney] has a lot of pricing power given what people spend on [Disney theme] parks,’ Cahall said. ‘But I don’t think they should be looking to maximize revenue early on. You want to maximize subscribers. That’s what the equity market tends to like, sub growth.’

The theory behind that focus is that by creating a huge subscriber base, you can build more pricing power, and it’s one reason Netflix investors are so laser-focused on sub-growth metrics.”

The Magic of Disney

Disney does one thing very well: they make great content for kids. After almost 100 years, that fact is taken for granted. But every parent who has been subjected to each and every G-rated movie knows that there’s Disney/Pixar and then there’s everything else. The content is evergreen and appeals to audiences of any age. They become fans as toddlers and continue watching to old age. That mix means a product that has virtually no audience turnover.

More than Netflix, Hulu or Amazon, Disney was made for OTT. More than any other service, this will be the big one to watch.