Disney+ Launches Latest Entertainment Industry Disruption

The entertainment industry has had a good run since the first movie theater opened – in Los Angeles, of course – on April 2, 1902. Suddenly millions flocked to the movies, especially once The Jazz Singer, in 1927, effectively ended the silent-film era with the first “talkie.” 

The first major disruption was when the Department of Justice, in 1938, began suing the eight major studios for violations of the Sherman Antitrust Act and illegal trade practices, namely producing, distributing, and exhibiting their films exclusively. A decade later, the U.S. Supreme Court’s ”Paramount Decree” forced the studios to end their monopolistic practice, which ultimately ended the Hollywood Studio System. (Ironically, today, Makan Dlrahim, the head of the Justice Department’s Antitrust division, is arguing for the Court to overturn the 1948 decrees.)

The next disruption brought an official end to Hollywood’s Golden Age: TV. The combination of the post-war move to the suburbs (far away from the downtown movie theatres), affordable televisions, and four major TV networks broadcasting seven nights a week, was a compelling reason to stay away from “the movies,” and millions did. By the 1960s, more than half of American homes had a TV.

Ironically, in 1948, the same year of the “Paramount Decree,” the networks began their nightly programming. The first cable TV operators launched services in rural Arkansas, Oregon, and Pennsylvania. But, by the 1960s and ‘70s, cable TV expanded into bigger cities and major metro areas, with the first “pay TV network,” HBO, launching in 1972. Satellite distribution of HBO and Ted Turner’s WTBS ushered in the cable era, with 16 million cable-subscribing households by 1980. Deregulation, in the form of the 1984 Cable Act, paved the way for “the largest private construction project since World War II.” Between 1984 and 1992, the cable industry spent over $15 billion on wiring America, and billions more on program development. By 1990, over 53 million households subscribed to cable – a decade later it was more than 65 million.

Meanwhile, the first mag tape video players – VHS and Betamax – were released in the late 1970s, so consumers could “schedule” their own programming. Once VHS won the “format war,” VCR sales accelerated quickly, particularly as hardware prices plunged. By 1984, the head of RCA’s consumer electronics division proclaimed that “one out of seven homes has a VCR now; it’s no longer a novelty.” And, already, prices that began at $1,400 for a Betamax unit, in 1975, had dropped to $529 in 1983, for dealers. 

An enterprising Texan, David Cook, saw the opportunity of renting VHS movies – and games, and opened his first store in October of 1985. Blockbuster opened their 1,000th store in the early 1990s. But was caught flat-footed by the next industry disruption: the DVD – forcing Blockbuster to file bankruptcy protection in 2010, and close their last store in 2014. 

The world’s first DVD - Digital Versatile Disc player was introduced – in Japan, in November 1996, by Toshiba (and was called the SD- [for Super Density]-3000); in March of 1997, it came to the U.S. Fourteen months later, Marc Randolph and Reed Hastings (who’d already taken his first company, Pure Software, public), two more enterprising entrepreneurs – based in Silicon Valley, saw the opportunity to rent DVDs -– by mail, via “the world’s first online DVD rental store.” By 2004, nearly two-thirds of U.S. homes had a DVD player, and the following year, Netflix was mailing out one million of their ubiquitous red DVD-stuffed envelopes each day.

Meanwhile, by 2000, cable companies – with the Internet era in full bloom, began testing three new approaches to watching TV: video on demand, subscription video on demand (SVOD), and interactive TV. By 2002, about 280 nationally delivered cable networks were available. And today – according to the California Cable & Telecommunications Association, approximately 800 programming networks are offered over cable, viewed by over 93% of Americans, most of whom subscribe to high-speed internet service through their cable provider as well.

As data speed accelerated and bandwidth prices plummeted, Netflix jumped onto the streaming bandwagon in 2007 – the same year the company mailed its billionth DVD. While still offering DVDs through the mail, most of their 137 million global subscribers stream their – increasingly original – content now. Fast-forward to June 2018, and according to Wikipedia, Netflix crossed $180 billion in market cap – “becoming the world’s largest digital media and entertainment company, and bigger than every ‘traditional’ media company except for AT&T, Comcast and Disney, and the 59th largest publicly traded company in the US S&P 500 Index.” Its original content, like House of Cards, Orange is the New Black, and The Crown, have been critically acclaimed, and last year’s Roma was nominated for 10 Academy Awards.

It’s also allowed subscribers to change their viewing habits to binge-watch their favorite shows, by making the whole season available at once. For example, all ten episodes of The Crown, season three, were released last Sunday.

Of course, Netflix isn’t the only streaming offering. According to PC Magazine’s latest comparison of video streaming services (including: Hulu, Amazon PV (with ~105M subscribers), fuboTV, Sling TV, Philo, Netflix, YouTube TV, HBO Now, and Disney+), only two merited 4.5 stars and “Editor’s Choice” ratings: YouTube TV (for general audiences - $49.99/mo) and Netflix (for original programming - $8.99/mo), and, while garnering only 4 stars, Hulu earned an “Editor’s Choice” award (for TV fans - $5.99/mo). 

And that brings us to the latest disruption to the entertainment industry: Disney+. Not only did Disney+ “launch hot,” according to The Economist, with 10 million people signing up the first day, PC Magazine noted Disney as the #1 “Best Video Streaming Deal This Week,” given new users get a “free 7-day trial to stream Disney, Pixar, Marvel, Star Wars (including The Mandalorian), and more.” “More” includes LucasFilm, National Geographic, all 662 episodes of The Simpsons, and a ton of “family friendly favorites.” Disney+ also offers a $12.99/mo plan that bundles Disney+, ESPN+, and Hulu’s ad-supported tier. Plus, “select” Verizon customers can get a free year of Disney+ as well. PC Magazine’s “technical testers” streamed shows and movies on Disney+ without problems – and noted it also supports 4K streaming, offline downloads (on mobile), plus it’s all ad-free, supports four simultaneous streams and seven customizable profiles, which “makes it a compelling option for families.”

As proof that entertainment has moved out of the theater, Disney+ (like many of the top streaming services) is available on the web, Android and iOS devices, streaming platforms such as Apple TV, Chromecast, Fire TV, and Roku, as well as gaming consoles such as Xbox One and PlayStation 4. Given how protective Disney has always been about releasing its content “from the vault,” the $69.99 annual plan price tag sounds pretty reasonable, particularly for the 41.46% of U.S. households with children under age 18 living at home.

So with 700 million global subscribers streaming video, it shouldn’t be surprising that the theaters are near empty.  In fact, my daughter saw three movies in her local Regal movie theater this past weekend: Friday at 6:30 pm, there were three other customers seeing The Good Liar; Saturday at 7 pm, six were watching Charlie’s Angels; and Sunday at 12:15 pm, 12 were enjoying Midway.  No wonder the Justice Department’s Antitrust division is arguing it’s time to overturn the Paramount Decree!

by Mimi Grant, President, Adaptive Business Leaders (ABL) Organization – Round Tables and Events for CEOs of Technology and Healthcare Companies