As strong as that growth rate is, it’s not clear that Disney can sustain it. In each market, including the U.S., the company has loyal fans who signed up as soon as the service became available, a pattern that repeated itself as Disney+ expanded into different parts of the world. But once that initial surge of subscribers had subsided, the growth would plateau for that region, according to a person familiar with the matter.
This point about plateauing is something, I predicted back in May after Kevin Mayer’s departure for ByteDance and TikTok:
“Everybody has a plan ’til they get punched in the mouth” – Mike Tyson
The flywheel Kevin Mayer had architected meticulously for Disney+ was punched in the mouth by COVID. As a result, he is now gone. It is no wonder he jumped ship so quickly, or that Disney+ employees are being anonymously quoted as saying their group is “fucked” now.
Box office and Disney+ growth data showed there is a near-perfect negative correlation between how audiences consume a Disney hit in theaters, and how they sign up for Disney+ service. Without theatrical distribution, there is no correlation, and without that correlation, no flywheel. Instead, a much different marketing equation emerges
An intelligently architected business plan is now dead. If recent Korean box office figures are any indication, the flywheel will not be returning anytime soon, and new leadership will have to find a new marketing model for cross-platform promotion for new and original content. Disney is rearchitecting Disney+ at a time where Hulu cannot grow internationally and Rebecca Campbell, who previously ran Disney Resorts, is the new architect of Disney’s DTC future.
In that mailing, I wrote out an alternate universe where Disney‘s Black Widow was released in theaters on May 1st, 2020. Disney+ releases plus theatrical releases kept Disney moviegoers and Disney+ viewers fed and engaged with a constant stream of content. That is now gone.
COVID has killed that, even to the extreme that the entire movie release calendar has been blown up:
It’s pretty much guaranteed that Black Widow is going to move into Eternals February 2021 spot and the whole MCU lineup will shift once again.
Without Kevin Mayer’s “flywheel”, Disney+ can no longer rely on theatrical releases to keep audiences engaged on Disney+, and vice versa. It needs a different plan, as this Tom Dotan article lays out, and that different plan involves difficult questions.
Growing Pain #2: Owning Hulu
Dotan writes about Disney+ struggling with its brand identity, and mentions how Hulu was initially a solution for some of Disney+’s brand challenges. I wrote in February:
An upside for Disney of owning Hulu is that Hulu offers a streaming alternative for content that is not “family friendly” at an extraordinary scale (over 30MM subscribers). This week Disney+’s new show Love, Victor, a spin-off of the gay romance movie Love, Simon was moved from Disney+ to Hulu, where it will debut in June (which is Pride Month) for this reason. Another show, a revival of its popular Disney Channel series Lizzie McGuire, has been put on hiatus for reasons its star Hillary Duff has said also have to do with the show not being “family friendly”. Both moves were preceded by High Fidelity moving to Hulu a year ago, which debuted this month to positive reviews.
These stories suggest that, (1) post-Fox merger, Disney is still figuring out which content from its creative pipeline gets distributed on which platforms; and, (2) Disney already has taken a firm stance on Disney+ content being “family friendly”, even at the the expense of legacy Disney Channel content (a broader content strategy which Wall Street analysts worry will slow the service’s subscriber growth).
#1 is still true, and #2 is being revisited, according to Dotan.
The challenge for Disney+ is how it threads that needle, not just because Hulu has become an alternative distribution platform at scale but especially because Hulu is an alternative distribution at scale.
Meaning, if Disney+ is now looking at an “expanded aperture for more mature products”, the implied question which “more mature products” should be distributed on Hulu, and not Disney+, going forward?
Hulu & Disney are already on sensitive ground
This not the first difficult question Disney has confronted with Hulu.
….the move poses technological complications of its own, which have caused Disney executives to hesitate on making the switch. Parts of Hulu’s technology are highly regarded—in particular, how it serves ads on the service, which isn’t a core strength of Disney’s main streaming-tech group. The hesitation also reflects a belief among executives that the integration could take up to two years, delaying other plans in the meantime, former executives said.
This obstacle, which is rife with some ugly politics and egos, is existential for Hulu because it is also an obstacle to their ability to their plans for international expansion. As new CEO Bob Chapek told investors on the Q1 earnings call in May:
Long term, we’re still bullish about Hulu international. Right now though, given the cash situation and the sort of uncertainty around our overall business, we’ve got no plans immediately to make any investment in that business internationally. But that again is in short term only because of the COVID situation that we’re faced with.
In other words, Hulu’s current status within Disney involves some ugly politics on the engineering side and delayed plans for Hulu’s international expansion.
Where does it go from here?
The information’s story about Disney+ treading uncertain waters is actually very much a story about Hulu treading uncertain waters.
Hulu needs to grow, and it will need new content to grow. It will also need better resources for its back-end to grow internationally.
Disney+ is beginning to plot out a future which bleeds into Hulu’s genre of content, inevitably making it a competitor. On top of that, Disney’s BAMTech engineering teams are trying to become the standard platform for Hulu’s back-end.
And, then on top of all of this Disney’s DTCI division has a brand new Chairman in Rebecca Campbell.
Ugly internal politics is the last thing Rebecca Campbell should be worrying about for Disney’s streaming future. And yet, it seems to be part of the package
Next week I am writing about AT&T’s Q2 earnings call. Sign up for a monthly plan, or visit PARQOR.com to download the PDF of the mailing for $4.99.
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