Since the following is critical of this post by Josh Marshall, I should start by pointing out that the main thrust of his post, an analysis of the implosion a few years ago of the news industry, is sharp, insightful, and on target. Definitely a must read if you have any interest in the topic.
Where Marshall goes off track is in his comments on the state of the streaming industry.[Problem areas emphasized.]
You may have noticed that storied Disney CEO Bob Iger is back in his old job after successor Bob Chapek was unexpectedly fired last month, the corporate equivalent of a drumhead trial and summary execution. The issues at Disney are partly the bearish stock market, partly Chapek’s poor performance. But the central issue is managing Disney’s transformation or attempted transformation into a streaming behemoth. You may already subscribe to Netflix or Amazon Prime or Hulu or AppleTV. If you do, maybe you’ll sign up for one or two more such services. But not more than that. There’s been a furious competition to be one of those one or two more. Under his long tenure at Disney, Iger made a series of acquisitions — Marvel, the Star Wars franchise, Fox entertainment and more — that made that plausible. Now the future of Disney as a streaming business is in question and that is a central reason why Iger is back.
Normally I wouldn't make such a big deal over this, but Marshall's comments reflect the conventional wisdom and there are few subjects on which conventional wisdom has been so consistently and entirely wrong about as it has been with the future of streaming. If you go back 8 or 10 years and read all of the major publications on the subject, you will see that virtually every major assumption and prediction has been proven comically off base.
One of the standard tenets was that Netflix was on track to become both vertically integrated and the absolute leader with substantial monopolistic power. We'll get to the vertical integration later. How about the market dominance?From TechCrunch:
Disney reported results for the final quarter of its 2022 fiscal year today, revealing a total of 164.2 million Disney+ global subscribers, an increase of 12 million subs from 152.1 million in Q3. The flagship streaming service was only expected to gain 9.35 million subs.
Across Disney’s streaming services, Disney+, Hulu and ESPN+ had a combined total of 235.7 million subscribers, up from 221 million in the third quarter. The company beat expectations of 233.8 million.
“2022 was a strong year for Disney, with some of our best storytelling yet… and outstanding subscriber growth at our direct-to-consumer services, which added nearly 57 million subscriptions this year for a total of more than 235 million,” said Bob Chapek, chief executive officer, The Walt Disney Company, in the letter to shareholders.
The company overtook rival Netflix for a second time, despite Netflix reaching 223.09 million global subscribers during its third quarter.
We could go back and forth on whether comparing Netflix to the Disney bundle is the most valid approach -- there's no right answer to that one -- but you can't really talk about an "attempted transformation into a streaming behemoth." Chapek is a textbook Peter Principle idiot, but Disney is, by at least one reasonable metric, the biggest streaming service and if you believe the standard narrative about first mover advantage and the market only supporting only two or three platforms, running this division at a loss for a while is perfectly defensible.
But we need to throw in an important bit of context here.
While most of the money and virtually all of the attention goes to 'originals,' viewers mainly spend their time watching older shows. Pretty much all of the subscription based services other than Netflix, and AppleTV have large, often huge catalogs. Even Amazon, which is pursuing a partnership-based model, jumped in with MGM. Not only has Netflix never shown any interest in acquiring existing catalogs; many of its originals such as House of Cards and She-Ra actually belong to other companies. When Disney spends big money on the Mandalorian, it will cashing in on baby Yoda for years; When Netflix spends big money on the new Airbender show, Paramount will be cashing in for years.
If Netflix had such an overwhelming lead, this might not matter that much. If the company had effective monopsony power over the streaming industry, the studios would have to play ball, but that is not and very probably will never be the case, which leaves Netflix, of all the platforms, by far the most dependent on its competitors. (If you go back eight or ten years, that monopsony assumption was a fundamental part of the standard narrative, It didn't make sense then either.)
None of this means that Netflix is doomed. It's a well-run company with a viable business model as long as things stay basically the same. It is, however, unlikely that Netflix will make it to a final duopoly in anything like its current form. (And, no, the company will never catch up with its competitors' catalogs simply by producing new content, and it doesn't really appear to be trying to.)
But what about the very possibility of a duopoly?
With a handful of exceptions, the major studios (and now, to a limited degree, Amazon) have long controlled every major title, character and franchise you can think of that's not in the public domain, and these are where the money is. Even shows in their fifties and sixties like Andy Griffith and MASH absolutely crush hits like the Crown in terms of viewership. Reboots, sequels and spinoffs of often decades old IP are among the biggest 'new' shows.
Disney was the 800 lb gorilla in intellectual property even before the Fox merger (which was an enormous anti-trust violation, but that's a topic for another post), but valuable properties are spread out among all the majors. Disney, WB, Paramount, Universal, and possibly Columbia all have big enough catalogs to demand some kind of seat at the streaming table.
This doesn't rule out consolidation down to two or three platforms but it does complicate the situation. These four or five have and --barring further studio mergers -- will continue to have content that is essential for the paid streaming industry if it wants to continue being a one-stop-shop. With purely ad-supported platforms nipping at their heels, the subscription services can't afford to chase a large part of their audience to cable or niche streamers or some à la carte option.
A Netflix/Amazon duopoly supported by a small cartel of suppliers might actually be better for consumers than what we have now, but they would be nothing like the vertically integrated behemoths that everyone was predicting a few years ago. If anything, it would be closest to the dynamic of broadcast television before deregulation when the networks were prevented from favoring their own studios.
As for the troubles at Disney, I think Marshall underestimates how much of a rake-stepping idiot Chapek proved to be, walking into political minefields that a competent CEO would have seen a mile off (see the video below), spectacularly screwing up major releases ("the worst opening for a Disney Animation Thanksgiving title in modern times"), spending big money on tons of streaming originals that got lost in the shuffle due to oversupply and bad marketing. Other than solid profits for the parks, perhaps the only accomplishment he has to boast about is Disney+/Hulu/ESPN passing Netflix.
Is "the future of Disney as a streaming business" in question? If we are talking about getting out of streaming entirely, then the answer is obviously no. Will there be some rethinking of strategy and goals? One would certainly hope so. There's plenty of room for cost cutting, much of it low hanging fruit. They could stop trying to maintain Hulu and Disney Plus as more or less autonomous platforms and roll them up together, perhaps with the latter as a premium tier for the former. They could start licensing more of their less valuable properties which would bring in a great deal of revenue (Paramount brings in 6 1/2 billion or so a year following this strategy) In addition to the money, broader licensing is a good way of raising the profile of these lesser properties without crowding out the shows you are trying to push.
For the record, Disney never should have been allowed to accumulate most of this IP. Congress should have stood up for the public domain and against the studio's lobbyists when copyrights were due expire and the Justice Department should have blocked the Fox merger, but they didn't and any analysis worth listening to is going to take these facts into account.
