Disney+ creates huge opportunities
Disney launched its new streaming service, Disney+ on November 12, and 24 hours later they had 11 million subscribers. In case you've been living under a rock or don't love anything cool (Disney owns all the cool stuff!), I'll inform you that Disney+ offers an overflowing smorgasbord of content from these universes:
- Disney
- Marvel
- Star Wars
- Pixar
- National Geographic
- Select 21st Century Fox content like The Simpsons
You get all of this content for $6.99 per month, although promotional offers abound.
For me personally, subscribing is a no-brainer. I have 3 kids of varying ages, and as a big kid myself, I can't wait to watch not only old Marvel and Star Wars content, but new original programming from these universes as well.
My young son will love watching things like Toy Story and The Incredibles movies. My 8-year old daughter can't get enough of The Descendants, and my pre-teen will binge on Star Wars and Marvel.
The new programming is particularly exciting for me. I can't get enough Star Wars (except for the prequels of course), and the new live-action offering, The Mandalorian will help satiate my need. The first episode was fun!
With amazing content and an extremely attractive price point, Disney+ seems like a juggernaut poised for certain success. That said, Disney (the company) has some unique opportunities to really lock in subscribers and take advantage of force multipliers. Here are a few ways Disney can use their business scope to lift several revenue lines.
Disney+ & Data Network Effect
Let's start with the streaming service on its own - as with any good SVOD, Disney+ can establish a Data Network Effect. Netflix does this extremely well - using customer data to personalize recommendations. Netflix constantly uses your viewership data to enhance the content it suggests you watch next, leading to more viewership, which provides even more data to improve recommendations.
They've used this to great effect - House of Cards was created after Netflix saw that subscribers who over-index on political dramas also happened to over-index on Kevin Spacey content.
As subscribers consume more content, Netflix acquires more data, which it then uses to improve recommendations, which leads to a better user experience, which leads to more customers that provide more data to improve recommendations. This cycle keeps spinning and improving the product, which works to attract more users and more time spent in app.
As more users come aboard the Disney+ train, Disney proper can really flex its muscles due to the vast scope of their business. As everyone knows, Disney makes wonderful films, magical theme parks and cruise experiences that delight millions of people each year.
Theme Parks, Cruises & CPG
Disney can use these other business lines to secure and maintain loyalty to Disney+. For example - I would establish a loyalty program that offers benefits at theme parks, cruises, their eCommerce shop and elsewhere in exchange for increasing lifetime value for Disney+.
I would recommend something like $100 off at a Disney theme park after a year of continuous subscription to Disney+. Yes, you're giving up $100 of top-line revenue, however you'll pull in customers to theme parks that might not go otherwise. Given the huge margin for Disney theme parks and cruises, $100 is a very small price to pay up front for long-term loyalty. On top of that, I would guess that getting families to a theme park or cruise is a key growth lever.
Disney is a unique business in that it absolutely nails the customer experience in all business lines. From theme parks to cruise lines to CPG, Disney puts smiles on peoples faces consistently in a way that competitors struggle to match. As a father of 3 young kids, it's a struggle to keep everyone happy all the time.
We are not "Disney people" by any stretch of the imagination, but on the advice of several friends we went on a Disney cruise a few years ago. We first tried a 5-night cruise, as the price of these cruises are roughly double that of other cruise lines. The experience was nothing short of magical.
My wife and daughter were crying as we walked off the boat on the last day. We booked a 7-day cruise while were still on the boat on the first trip. On day 7 of the second cruise, my wife and daughter cried again, as it was such a wonderful trip, we just didn't want it to end. It's rare that all 5 of us are all happy at the same time, as our 12-year old rarely wants the same thing as the 8 or 6 year old. On both cruises, everyone was happy the whole time. No one fought (huge win!), and the cruises gave us some of the best memories we've ever had. I'll gladly shell out a large amount for that, and I believe others will too if you can get them to have that first experience.
I believe if you can get a family to experience that one time, they'll come back over and over again.
Disney can adopt the same tactic with movie tickets. A household subscribed for a year can get free tickets to Disney movies in theaters each year for example. Again, you're sacrificing revenue up front, but cementing brand loyalty, which should increase revenue in the long-term. If a subscriber is watching Disney+, going to Disney movies, and visiting a theme park or taking a Cruise, it becomes more challenging to cancel a Disney+ subscription.
Let's talk a bit more about the opportunities provided by the out of home experiences and how Disney+ can secure long-term loyalty and lifetime value with those other business lines.
Personalization
First, not only can Disney+ loyalty trigger benefits like discounts, they can also offer personalized experiences. Cruisers know that part of the experience is decorating your door with customized decorations, some of which come from the cruise line based on your cruise history. You'll also find that the room service staff will provide little surprises in your room as they turn down the beds, etc.
For special events like a birthday they may decorate the room to help celebrate. Imagine the delight on a child's face as they open the door to the room and see a magical scene that didn't exist in their room just a few hours before, and it's all for them.
With Disney+, data is gathered on what each child loves, be it Star Wars content, strong female characters, or specific characters like Captain America. One of the things I loved about the Disney cruises is the element of delightful surprise. Imagine coming back to your room and seeing Frozen decorations, with a gift basket on your bed "from" Elsa and Anna.
Further, there's an acquisition play here as well, as subscribers who over-index on Star Wars content are targets for marketing things like Star Wars day at sea on the cruise, or the Star Wars section of the Disney theme parks. If someone over-indexes on Marvel content, I'd be pushing tactics like emails and Facebook ads promoting Marvel day at sea.
Chewy is that you?
As an aside, if you're going to do the cruise and you have any Star Wars fans, I strongly recommend you try a cruise with the Star Wars day at sea.The whole ship gets overtaken by the Empire, with storm troopers bossing people around, and looking for those pesky rebels. My kids went through Jedi training, then had to fight Kylo Ren. Again, Disney absolutely nails the customer experience, and this was no different.
Cross-side Network Effect
As these and other opportunities are exploited and subscriber numbers swell, Disney+ will become the premier destination for content creators, and a cross-side network effect can take hold. Most directors, actors and producers want their work to be seen by as many people as possible, and as Disney+ grows, they will control more and more of the "supply" (great content) and "demand" (subscribers). As they grow in size and secure more of both, Disney+ will become a premier destination for content creators who want more and more people to see their work.
As Disney+ controls more and more of the supply and demand, and content creators move to work with them, Disney+ accrues more power. They can apply that power to the creative process, ensuring that it is up to their standard. That said, Disney+ will need to be careful that they don't alienate content creators who value creative freedom.
As Disney is able to control and make more content, Disney+ becomes more attractive to people and can thus increase subscriber numbers.
Aggregation Theory
This puts Disney+ in an extremely powerful position, as they can be considered an Aggregator as described by Ben Thompson in his Aggregation Theory.
As with Netflix, another aggregator according to the theory, Disney+ controls supply for Disney, Marvel, Star Wars, Pixar and NatGeo content, accrues zero marginal cost for additional users and has no distribution cost. They control the relationship with subscribers, and content creators who want to work with Disney have little power due to Disney+ controlling the supply and demand.
This is a key difference between Disney+ and Netflix - while Netflix is creating original content, they also pay licensing deals for content they do not own, which puts them in a weaker position. Consider the show The Office, which is the most watched show on Netflix. The Office is owned by NBC, and as they work to launch their own streaming service they have decided to pull The Office from Netflix. Disney+ doesn't have this issue, as they own all of their content.
Economies of Scale
As a powerful aggregator, Disney+ can also tap into Economies of Scale: as it acquires more subs, Disney+ can spread their costs across more users, and use that advantage to produce additional content, which makes the service more attractive to users. As subscriber base grows, Disney+ could even decide to lower its already ridiculously low price to squeeze out competitors.
It's a wonderful time for entertainment
It's a wonderful time for great entertainment - there's so much great TV to watch, and the streaming space has created some truly exciting business scenarios. None are more interesting to me than Disney+, which has so many ways to secure more subscribers, make wonderful content, and create a moat to protect themselves from competition.
Their unique business scope allows them so many opportunities to create lock-in for subscribers, but more importantly, provide a personalized and magical experience for not only those subscribers, but visitors to theme parks, cruisers and more. I'm excited to see how they make it all happen!