Business transformation in media and entertainment is one that is oftentimes associated with channel transformation. Over the past 40 years, we have seen two of these shifts -- one from broadcast to cable and satellite and another to over-the-top streaming.
While Disney faces many battles on these fronts, including an uncertain advertising future at ABC, perpetual pricing negotiations with cable and satellite distributors like Comcast, and the rise of streaming services like Netflix, it has been able to successfully transform itself by adopting a “disrupt or be disrupted” mentality.
Unlike other mass brand transformations, however, the catalyst that helped Disney secure its long-term future was its focus on content, which would prove to be the linchpin that would help it navigate distribution headwinds and reorient its product, service, and brand to build loyalty.
How Disney was saved
In 2003, Roy E. Disney, a company board member and Walt Disney’s nephew, launched the “Save Disney” campaign. The initiative emerged as Disney’s stock price had fallen 60 percent over the previous five years and it was clear the company needed to evolve.
Roy Disney maintained that the company had “lost its focus, its creative energy, and its heritage.” In a public letter, he denounced the company for underinvesting in parks and falling to “establish and build constructive relationships with creative partners, especially Pixar.”
Disney CEO Michael Eisner was eventually ousted by the board in 2005 and his successor, Bob Iger, took swift action to transform the company through a series of acquisitions. The company acquired Pixar in 2006 ($7.4 billion), Marvel in 2008 ($4 billion), Lucasfilm in 2012 ($4 billion) and 21st Century Fox in 2019 ($71 billion).
Disney then paid $6 billion for Comcast’s 33 percent stake in Hulu in order to fully control the streaming service and committed to investing an additional $20 billion in its theme parks division. The latter investment enabled Disney to deliver physical experiences and strengthen its brand connection with consumers.
The resulting combination of deep consumer connections, best-in-class content, and an incumbent streaming platform gave Disney all the necessary tools to take on Netflix via Disney+ at the same time that many of its competitors are being disintermediated.
In just eight Months, Disney+ has reached ~60 million subscribers despite the company estimating it would take about five years to reach a critical mass of 60-90 million users.
Establishing a direct connection to consumers
It’s been reported that Disney willingly agreed to lose $150 million in operating income by ending a licensing agreement with Netflix and launching Disney+. In fact, it invested heavily in Disney+ even though it didn’t expect it to make a profit until 2024.
Controlling its own streaming service has proven to be a resounding success for Disney thus far, even though the offering is only offered in 30 different territories. Most importantly. Disney+ gave Disney an avenue through which to disintermediate cable partners such as Comcast and Charter as consumers increasingly cut the cord.
In just eight Months, Disney+ has reached ~60 million subscribers despite the company estimating it would take about five years to reach a critical mass of 60-90 million users. When combined with Hulu and ESPN+, Disney has quickly built an ecosystem of more than 100 million streaming subscribers.
Disney’s move to a more direct-to-consumer (DTC) business model has been pivotal in this evolution and has led to outsized growth. By its year-end 2019, the DTC unit contributed ~20 percent of total revenues but is expected to contribute the majority of revenue growth (63 percent) over the next two years.
Evolving to changing consumer demographics
Disney leaned in o changes in consumer behavior and the emerging reality that consumers are more diverse, expressive, and empowered than ever. To this end, Disney has shifted its strategy to include:
- Creating and acquiring inclusive content designed for previously “non-core audiences” such as Marvel’s Black Panther and Pixar’s Moana and Coco.
- Making content accessible to broader audiences with flexible models, such as the attractive pricing of Disney+ and less expensive bundled or ad-supported packages of its Hulu streaming service.
Through the Fox acquisition Disney also gained control of Hotstar, an Indian streaming service with 300 million active users that it is using as a platform to launch Disney+ in India. As of April/May, India accounted for 15 percent of its users, suggesting Disney’s transformative actions taken over the last decade are also driving consumer engagement internationally.
Using technology to improve the consumer experience
Disney under Bob Iger innovated across many of the company’s businesses, but his execution in the parks division stands out since theme parks are not typically viewed as a business model that lends itself to innovation.
Technology is essential in the evolving consumer experience, and the need to merge the digital and physical worlds with deeply integrated hardware and software offerings is critical. Disney invested heavily in its theme parks to make visits even more spectacular with the Disney Magicband.
The Magicband, which offers convenience, interactivity, and ease of access to attractions around the park, has led to a continuous increase in ticket sales, length of stay, and food and beverage spending. Not to mention, it provides Disney with tons of data that will allow it to regularly optimize the customer experience.
Disney exemplifies many traits of transformational mass brands
Not all media companies can use M&A to improve their competitive position, and many will struggle despite heavy investments. That said, Disney shows that the transformation of mass media brands is possible with the right vision and investments.
The company provides a playbook for other companies to follow as they seek to navigate the changing media landscape. But it also exhibits many of the traits of other mass brands that successfully adapted from legacy businesses to leverage technology and meet new consumer demands.
- Brands that successfully transform are willing to disrupt themselves and change the way they traditionally have done business for decades in order to thrive in the future;
- They see shifts in consumer behavior and demographics and evolve to meet them where they are; and
- They recognize technological advancements as opportunities to pivot, become more consumer-centric, and create more meaningful experiences for their customers.