What the Disney Netflix Breakup means for OTT
When Disney takes action, the rest of the entertainment world not only takes note, but takes action to react. The big mouse is rarely a first mover or early adopter when it comes to making a company-altering decision. Such a move requires years of study, deliberation, and strategizing. When a decision is made, it is a precise reflection of the industry’s direction. Make no mistake, when Disney removed their content from Netflix and purchased a majority stake in BAMTech to launch OTT streaming services of their own, they also defined the future of content distribution.
At the start of 2017, Disney was still deeply reliant on Netflix, as were most major networks and studios. OTT continued to be the fastest growing sector of content distribution, but without the means to do it themselves at scale, content owners relied on licensing to established services in order to get their cut of the OTT pie. In this case, the profit equation for Disney was simple; they provided the largest titles in entertainment to Netflix in return for a significant paycheck. No need to market, worry about technology, or engage with the audience. Netflix had already mastered the OTT experience, and possessed a user-base approaching critical mass; a well-oiled machine able to squeeze more profit out of a film than anyone else can do on their own…until now.
All of this changed when the barriers to enter the OTT market dropped to a point that mitigated the risk of ditching Netflix to tolerable levels. Several factors have aligned that allow content owners like Disney to safely withdraw from traditional digital distribution hubs to go it on their own. Consumers have vigorously expressed their preferences to pay for SVOD services, or view ads, rather than purchase a bloated cable package. Suddenly, with the growing ubiquity of OTT devices and the reduced price and effort necessary for content owners to run an OTT streaming service from both a backend and UI/UX standpoint coalesced and now any content network can self-distribute effectively.
How it was possible
The decline of cable is a well-documented phenomenon that has coincided with the proliferation of OTT devices for viewing content. By the end of 2017, 25% of households will officially “Cut Cable” with 35% of millennials never having it at all. The younger generations are predicted to have an even more adverse outlook legacy media. Conversely, devices for viewing content via OTT apps have exploded, a trend predicted to continue. This is why OTT is on track to become a 64 billion dollar industry, and why letting the majority of that revenue go to three services (Netflix, Hulu, Amazon Prime), all still new to the original content game, makes no sense for networks and studios. Rather than propping up Netflix with exclusive content, it was time for Disney to start putting its library to work for itself.
The final factor that is allowing networks and studios to break free from Netflix and the like is access to technology. To truly run an OTT streaming service requires the marriage of several complex and intricate systems, all of which must work seamlessly to provide a unified experience across an ever-expanding number of endpoints. It is not enough to just deliver the right video, streaming at the right quality, that loads at an acceptable rate. Consumers expect an experience packed with bells and whistles to enhance engagement and the service requires certain features, like a recommendation engine, to keep fans watching. To whip this up internally would be a multi-year and multimillion dollar undertaking, requiring constant upkeep and updating. For most entertainment companies, it does not make sense to take the focus off of what they do best, produce content, in order to undertake this challenge. In the current marketplace, there are many solutions to ascend the OTT technological summit. For Disney, the answer was to buy a tech company that had mastered an OTT format for apps with a strong backend architecture. For others it means an internal team piece-mealing different external systems and then uniting them in-house. Many networks and studios are opting to partner with tech companies like Unreel.me, which has a fully fleshed out solution to launch OTT streaming services quickly, and backs them with a user experience that has taken years to perfect. In Unreel’s case, that also means access to patented technology focused on Big Data and UI/UX that networks and studios won’t find anywhere else.
What has 2.58 billion dollars and a huge shake up in the industry bought Disney?
Disney is set to enjoy all of the advantages in which the other major streaming services have indulged in for years. The primary gain is pure profit. SVOD re-occurring monthly payments and the AVOD model are extremely lucrative and the revenue will all go directly into Disney’s pocket. The other advantage is that Disney now owns the audience watching their content on OTT. They will be able to recommend to them what Disney wants to be seen, show them ads and promotions for the products and experiences they want to push, and target them via email however they choose. The other side to owning their audience is Big Data. The immense amount of information Disney will collect about its fans is invaluable. To have a profile of the demo and psychographics around each subscriber, and to understand how they engage with content, will guide content creation and marketing for Mickey and crew for years to come.
Netflix always knew that the studios and networks they license from would eventually pull the plug and become competitors. That is why they are slated to spend 8 billion dollars on original content this year. Disney has now confirmed that wisdom; we have reached a point where it is foolish for content owners not to take on distributing their content themselves in order to cut their own slice of the rapidly growing OTT pie.