Critiquing Disney's Strategic Moves & Bundling Choices; Navigating the Future of Streaming w/ Mariah Muscato

Critiquing Disney's Strategic Moves & Bundling Choices; Navigating the Future of Streaming

In today’s episode of "Unsolicited Feedback," host Fareed Mosavat and Mariah Muscato delve deep into the seismic shifts in Disney's business strategy, particularly focusing on its venture into the world of streaming with Disney+.

On the heels of narrowly escaping a hostile takeover that claimed CEO Bob Iger had made numerous missteps, we thought it would be interesting to discuss if Iger should have made different decisions in hindsight, and what decisions he should consider moving forward.

As the media giant repositions itself from a content-forward to a tech-savvy enterprise, this episode unpacks the implications, challenges, and potential pathways, leveraging insights inspired by Shishir Mehrotra, CEO of Coda, and his brilliant blog post, “The Four Myths of Bundling.”

Strategy Shifts for One Line of Business Can Deeply Impact Others, as Seen with Disney’s Pivotal Shift to Streaming 🤹

Historically, Disney has been synonymous with high-quality, family-friendly entertainment, leveraging its vast library of iconic characters and stories. This iconic diagram from 1957 paints a picture with content at the center of Disney’s business, which then fuels a wide range of other businesses like music, TV, theme parks, merch, and more.

However, recent years have seen the company boldly venture into the streaming space, which we have no doubt was the right decision. That said, doing so also creates significant challenges for the business model. Disney+ has relied on superfandom to grow its numbers, attracting superfans of Marvel, Star Wars, and Pixar to the streaming app. The problem, however, is that it’s hard to imagine casual fans subscribing when Netflix has a bit of everything, for everyone.

When cable TV was the dominant medium, the macro-market paid one price and could be exposed to Disney content freely. Now, only those who subscribe to Disney+ are really getting exposure.

Given that their model relies on the ability to attract fans to their content, and now they’re adding more friction to the beginning of the monetization loop, they are risking a (perhaps delayed) impact on the other businesses.

“The Best Bundles Minimize SuperFan Overlap and Maximize Casual Fan Overlap” - Shishir Mehrotra 🌐

Next, we explored Disney's decision to integrate Hulu and ESPN into its Disney+ bundle, a move signaling a broadening of its audience base beyond the superfans of its marquee franchises to include more casual viewers with diverse interests. At first, we found this fit strange purely from a content perspective, but what it unlocks is a new reason for the casual viewers to join.

We focused on the brilliant Shishir Mehrotra’s "Four Myths of Bundling," a framework that Fareed considers invaluable for understanding Disney+'s bundle strategy. Mehrotra’s analysis dispels traditional assumptions about bundling, asserting that the most effective bundles combine seemingly unrelated products to maximize casual fan overlap and minimize superfan overlap. This strategy, aimed at broadening the appeal of the bundle, seems to be at the heart of Disney’s recent moves, and moreover a proof point for why Netflix’s widely criticized high quantity, but mixed quality content across a broad scope of genres, has worked from a strategy perspective.

Our concern with Netflix is rather that they seem to be slipping in their ability to create franchises that create superfandom, and thus stickiness, a skillset that Disney still has a wealth of... except maybe with kids...

Sometimes Your Real Competition Is Adjacent to You 🪞

In the streaming wars, people largely talk about Disney+, Netflix, Paramount, Hulu, Peacock, AppleTV, Prime Video, etc., - YouTube is rarely mentioned! Mariah notes, that if Disney isn’t careful, they will further hurt their business as YouTube captures the kids market with hit properties like Cocomelon and Bluey. She talks about how the kids these days aren’t falling in love with Mickey Mouse the way she did when she was young.

Fareed doubles down to say that it’s not just the kids market where YouTube is crushing it. He posits that YouTube represents the ultimate bundle, offering an almost infinite array of content catering to every conceivable niche and interest. This positions YouTube as a formidable competitor in the content space, largely due to its user-generated content model which allows for endless variety without the high costs associated with producing polished, studio-quality content.

In this context, Disney+'s challenge is clear: to compete effectively, it must navigate the delicate balance between maintaining its brand's premium feel while expanding its content library in both breadth and depth.

When to Go Wide vs. Closed Garden with Your IP 🛡️

We wonder whether an ad-supported model or even a foray into more user-generated content should be in Disney+'s future to complement its premium offering and compete with the vastness of YouTube.

Right now, almost no Disney content is distributed beyond Disney+ aside from its theatrical releases. That means it’s monetizing the superfans well, but missing out on the distribution opportunities that helped make iconic franchises like Cars, Toy Story, and Mickey. It might seem counterintuitive, but we wonder whether they should consider leveraging the distribution channels Netflix and YouTube could provide if they were to license their content there, if only as a means to create new generations of SuperFans to not only eventually subscribe to Disney+, but also go to their theme parks and buy their merchandise.

We think the real question here comes down to monetization. Can they generate enough revenue in the long run from the streaming service to offset the potential declines in theme park and merch revenue? Or, should they prioritize a wide distribution network to ensure their ability to monetize content in a variety of manners remains healthy?

Further, Disney has always been a content company, but recently they’re acting like a tech company. They need to figure out which one of those objectives is P1 moving forward, and which is P2. We hope content remains P1, but it’s not totally clear that’s the case.

Looking Forward: Disney and the Evolution of Content Consumption 🎥

As the podcast wraps up, we feel like there will ultimately only be a few players. We’re in a pretty crazy world where we’re paying way more for all of our streaming services combined than we ever did for cable, which means eventually something will give. We think it’s consolidation down to a few platforms with broad appeal, and we suspect Disney will be one of them. We think Netflix, YouTube, and AppleTV/Prime will round out the field in the long run.