Is Disney Ready For The Streaming 'Food Fight'?

As Disney prepares to launch its Disney+ streaming service next year, a leader in the TV business warns that the company will need to evolve quickly in order to compete in the streaming “food fight.”

John Malone, the legendary cable investor -- whose holdings include large or controlling stakes in Charter, Discovery, Lionsgate, SiriusXM, and many others -- says that the head start by Netflix and some key technical advantages from Apple and Amazon mean that Disney will need to work overtime to catch up.

“[Tech giants are] disrupting the traditional studio architecture, going directly to talent, bidding against each other for anything that looks unique. I mean, this is going to be a food fight for a while,” Malone told CNBC last week. “And you know if Disney gets in the middle of the food fight, they're just going to have to live up to their brand in terms of what they deliver. And they're got to figure out how to make it somewhat unique because their content has been out there forever, so people are used to getting it and not paying for it, or not understanding that they're paying for it.”

One big problem is that forging a direct relationship to consumers is very different than creating superb content and relying on third parties to do the selling. Malone is in both camps, controlling distributors like Charter and SiriusXM, and content companies like Discovery and Lionsgate.

“[Disney has a] great brand -- there's no question. And they really know the entertainment business,” he says. “What they don't have is a massive number of global credit cards. They don't have massive direct consumer relationships at this point, and those are not easy to come by.”

Amazon, of course, is nearly ubiquitous in the U.S., with more than 100 million people alone paying for its premium Prime service, and far more using its platform. Apple, meanwhile, has hundreds of millions of customers for its products, most of whom also have accounts to buy apps for their devices. As Apple seeks to launch a content play next year, those will surely come in handy.

2019 is shaping up to be a big year for streaming video. In addition to Apple and Disney, AT&T’s WarnerMedia division is planning a major streaming service, while new entrants like Quibi think there is room for more content.

Ultimately, Malone believes that Amazon and Apple’s direct relationships and Netflix’s massive head start will keep them in the game. The question then becomes who else will be able to muscle their way into the scrum. 

“When [Netflix] raised their prices and didn't lose any material subscribers, I think the financial markets said "aha, glue," right? So if you have glue and you have growth and pricing power, now the question is how to manage that,” Malone says, “So unless [Netflix CEO] Reed [Hastings], does something really nuts, which he won’t, I think it's a question of modulating their spend and coasting into maturity, at which point they should be enormously cash generative.”

For Disney, the upcoming streaming wars will be an entirely new world. The company has thrived for decades by simply creating the best content, for movies, TV and theme parks, and letting it stand on its laurels. Poor technology, however, could undermine the content if it doesn’t work right. And unlike Disney Channel or ESPN, where technical problems would see consumers complaining to the cable provider, if Disney+ has problems, they’ll be calling the company.

The future of TV may very well be in streaming, but it is a battle yet to be won. Netflix has the head start and technology, Amazon and Apple have the customer relationships, while Disney and WarnerMedia have the content. Malone, who helped lead the cable revolution, surely relates to what he is seeing in the marketplace now.

Next year may be the year when we see if the tech giants can hold their lead, or whether big media is ready to catch up.

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