Disney+ – Good omens.

Teething problems are a good sign.

• I see the technical issues at Disney as a good sign because it implies that the demand for the unique catalogue that it has to offer is stronger than expected, putting it in a very strong position long-term.
• Disney + is off to a difficult start with enough users having trouble connecting to the service to cause the issue to trend on Twitter and the tech press to pick up the story.
• Effectively, new users were so keen to start watching the unique catalogue that Disney is offering that they all started streaming at once causing Disney’s servers to crash under the load.
• Disney is the latest content owner to launch its own streaming service which combined with HBO Now, Apple TV+, Hulu, Amazon Prime presents an increasingly fragmented offering to users.
• What I think users really want is a single place (or user experience) where they can discover, find and play all of the television and movies that they want.
• Discovery is key and while high-quality recommendations are far easier in video than they are in music (fewer items and simpler metadata), this is becoming a problem.
• This is because the premium home television and movie experience for users is becoming very fragmented.
• If users want to watch Orange Is The New Black, they have to remember which property it belongs to and navigate to the right app in order to watch it.
• This is an inconvenience but what really kills the experience is that if a user loves a show on Netflix and Disney + has a similar show, this will not be promoted to the user.
• I think that this has a significant and deleterious effect on the user experience meaning that there will be fewer subscribers, less engagement and lower revenues for everyone.
• This is part of the reason why I think that the current phase of expansion will lead to a retrenchment as content providers fail to make their revenue targets.
• There are two possibilities to resolve this problem:
  • First, industry co-operation: This could involve the creation of a neutral entity or piece of software that offers the user an integrated experience.
  • This would involve a single interface where all of the meta-data from the different services has been integrated so that similar or related items are offered to the user regardless of where they come from.
  • This sounds great in theory but getting these companies to co-operate in an area that they consider central to their appeal is going to be easier said than done.
  • Hence, I think the most likely outcome is consolidation.
  • Second, consolidation: Oversupply of high production value content, as well as brutal competition, is going to mean that only the biggest and strongest survive.
  • Netflix is one of the biggest, but I am not convinced it is the strongest.
  • It is being forced to spend vast quantities of money on original content as content owners pull their content from Netflix to promote their own services.
  • This is where Disney has a big advantage as it has a very large catalogue of well known and beloved content that is now exclusive to its service.
  • This means that Disney + is going to be at the top of most lists when it comes to allocating spending on streaming services.
  • Disney has plenty of cash for content as well as decades of experience in knowing what works and what does not.
  • I think that this will give Disney both the market power and the balance sheet to be the consolidator when its competitors start to run into trouble.
• Netflix’s future is now completely dependent on original content where the outlook remains fairly uncertain.
• It has yet to replicate the success of House of Cards and the longer it goes without another mega-hit, the more precarious its position becomes.
• Furthermore, many of its biggest competitors (Apple, Amazon & Disney) have very deep pockets meaning that they can lose money in content for longer than Netflix before getting into real trouble.
• Hence, I think that Disney (and potentially Apple and Amazon) will end up acquiring many of the weaker players resulting in a more comprehensive offering and user experience.
• I expect this to take place over the next 3 to 4 years as the craze for investing in content is continuing today as strongly as ever.
• The real loser here is cable which is increasingly seeing its premium offering replaced by streaming subscriptions and the low-end with advertising-supported broadcast channels.
• I would back Disney above all the others in the coming fight as its content offering is by far the strongest and it has very deep pockets.