The collateral damage to the TV business would be no less significant, and might give Disney executives even more pause. The House of Mouse faces converse challenges in film and television. Disney has an incentive to leverage its studio-film business to grow its streaming service. But the success of Disney’s streaming service could also cannibalize its lucrative TV enterprise.
Nobody benefits more from the modern cable-TV industry than Disney—or has more to lose from its erosion. In its latest fiscal year, Disney made about 40 percent of its total revenue, or about $24 billion, from its television networks, including ESPN, the Disney Channel, and ABC. But since 2010, viewership for traditional television has fallen 51 percent among Americans ages 12 to 24, according to Nielsen. This decay will accelerate as Disney’s streaming service gets off the ground and fewer people feel the need to pay for cable when they can subscribe instead to Netflix and Disneyflix (and Amazon Prime Video, and HBO Go). For young people in particular, a cable subscription may soon seem as antique as going to the opera.
Will Disney have the audacity to plunge headlong into streaming? The head of Disney’s direct-to-consumer business, Kevin Mayer, has said that the company is “all in” on its streaming business. For the moment, at least, a more accurate description might be all over the place. With its pending purchase of 20th Century Fox, the company seems to be betting equally on its future and its past—adding a formidable library of content from Fox for Disneyflix, but also buying regional sports networks for the cable bundle.
The sports bet could be a particularly shortsighted one. If Disneyflix accelerates the demise of cable, ESPN and other sports networks will feel the decline especially strongly. These channels remain profitable for the moment, but they carry burdensome contracts—ESPN pays nearly $2 billion a year for its NFL rights, for example—that will become crippling if millions more viewers cut the cord. This year, Disney is launching a new ESPN subscription sports-streaming service, but for now it’s considered a supplement to cable, without marquee games, and not a true hedge against further declines in cable viewership.
Caution is a predictable strategy for any publicly traded company, perhaps even more so at Disney. Bob Iger has enjoyed a celebrated run at the helm of the company, but many of his seemingly bold moves have actually been safe ones. He’s pleased shareholders by counting on the public’s bottomless appetite for nostalgia and lightly refurbished classics. He acquired Pixar, Marvel, and Lucasfilm—each already successful—and amped up their revenues through expanded TV and film franchises.
Streaming presents a different challenge than figuring out the latest excuse for heroes to team up. For inspiration, the company might look to its founder. In the 1950s, when Walt Disney launched Disneyland on TV and opened his eponymous theme park in Anaheim, California, he envisioned his business as an infinity loop of merchandising, in which filmed entertainment sold toys, toys sold filmed entertainment, and both sold park tickets. It’s not hard to imagine how a Disney streaming product could work the same way. Disneyflix wouldn’t carry advertisements for other brands, but it could function as a nonstop advertisement for Disney itself. With individual data on millions of viewers, Disney could customize coupons for toys and Disney-branded experiences for its biggest fans. Subscribers at premium membership levels could get special offers for Disney cruises and line-skipping passes at Disneyland and Disney World.
In this vision, Disneyflix wouldn’t just be Netflix with Star Wars movies—it would be Amazon for Star Wars pillowcases and Groupon for rides on Star Wars roller coasters and Kayak for the Star Wars suite at Disney hotels. That’s a product that could rival Netflix and create the kind of profits Disney has enjoyed during its unprecedented century of dominance. The company just has to destroy its own businesses—and the U.S. entertainment landscape—to build it.