Can Disney Become Netflix? Or Will Netflix Become Disney?

In a 2013 GQ article, Netflix founder Reed Hastings set a prophetic strategic vision, saying, “The goal is to become HBO faster than HBO can become us.” Since then, of course, Netflix has grown into a streaming and original content behemoth. And while HBO continues to set the standard for high-quality original content, no one really believes HBO poses much of a competitive threat to Netflix at this point. In fact, Netflix has dominated the streaming market to such a massive degree that a new strategic question has emerged: Can Disney become Netflix faster than Netflix can become Disney?

This may sound ridiculous to industry watchers who see Disney as the reigning content king and box office champ. No entertainment entity has a more valuable content library than Disney. In addition to Disney’s own properties– Frozen and The Lion King, for example—the company owns an arsenal of billion-dollar properties from Pixar, Lucasfilm, and Marvel. Disney’s library is so valuable that it seems inconceivable that Disney could be considered anything other than the dominant player in the industry. Right?

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Cue GE, Sears, and Blockbuster, please.

Here’s Disney’s problem: Its greatest strength–its brand–is also its biggest weakness. As I recently wrote for Techonomy, content is a commodity, making differentiation among content creators extremely difficult. Only a few entities in Hollywood maintain an identifiably valuable brand. Disney is one of them and by far the largest example. But it’s precisely because Disney has carved out such a strong brand for itself that it actually limits its potential to compete effectively against Netflix and scale its Disney+ platform.

Here’s why.

Contrary to popular opinion, Disney Studios, the beating heart of Disney’s business model, is not in the movie business. Instead, Disney is in the character- and universe-building business. This is what makes Disney so successful. Movies are simply the delivery vehicle Disney uses to monetize its characters and the universes those characters inhabit. Those characters and universes are revenue-generating machines–everything from theme park rides to dolls and action figures to licensing deals. But to achieve this unique differentiation strategy, Disney has to exclusively target the G, PG, and PG-13 movie-going public. In other words, families. And therein lies the rub for Disney as it launches its own streaming platform – its strong family-centric brand.

Platforms are niche-centric, not brand-centric. Platforms achieve scale by allowing consumers to find any type of content they want. And they may want a tiny horror short film or a huge comic book blockbuster. So, it’s easier for Netflix to create tent pole franchises than it is for Disney to create mature content like Love Death + Robots, Narcos, or Black Mirror due to its family-centric brand. In other words, it’s easier to create a library of great content than it is to become a platform for content. Netflix is a platform that creates content. Disney is a content creator that wants to…what exactly? Become a Netflix-like platform? Or is Disney+ just a place where people can get Disney content on demand? If the former, it risks diluting its brand. If the latter, it can never scale to Netflix-like size. All it can hope for is to be HBO Now on steroids. It’s a Catch-22.

To illustrate this point, imagine if Disney had created Game of Thrones. There would be no nudity, no swearing, no graphic violence. In other words, Game of Thrones would cease to be Game of Thrones. Instead, it would be a Disney-fied version of GoT. Who wants to watch that?

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Yes, Disney has Hulu for relatively adventurous content. But people have limited budgets. At $6.99 per month, Disney has priced its Disney+ platform at roughly the same rate as a monthly Hulu subscription. Ask yourself: if you had to cancel one subscription, would you rather cancel Netflix or Hulu? The typical cord-cutter didn’t cancel their cable subscription to watch network TV on their tablet. Disney+ may actually cannibalize Hulu and simply be an add-on for existing Netflix users.

Here are three additional problems Disney faces:

  1. Consumer behavior is changing. The tent pole content that will be featured on the Disney+ platform will be largely movies. Movies are not immersive. Fans crave content they can lose themselves in. Serialized content encourages this type of obsessive behavior. Movies don’t. For an example of this type of behavior go on YouTube and type “Game of Thrones reactions” into the search bar. You will see a sort of real-time decentralized social media ecosystem come to life. Movies don’t offer this sort of immediacy for Fandom.
  2. Hollywood is in the infant stages of another revolution, this time on the content creation side of the value chain. As an excellent recent article here at Techonomy by James Cakmak and Ryan Guttridge contends, technology is radically altering both the cost of content and access to it. This threatens Disney more than it does Netflix, because more players can create content that looks as good as a Marvel film but has the behavioral attributes Fandom craves.
  3. Finally, Netflix benefits from what I call “mental availability.” Virtually anywhere in the world, when a consumer thinks “streaming” they think Netflix. They don’t think Amazon, they don’t think Hulu, and they don’t think Disney. This is partly a result of first-mover advantage, but it’s also a result of strategic intention. Netflix went all-in on being the top aggregator of both original and licensed content, while others dithered.

Yes, consumers love the Star Wars and Marvel universes, but they also love Making a Murderer and Tidying Up. While Disney lurches toward creating another slate of Marvel films over the next decade, Netflix will most likely create the equivalent amount of content in a matter of months. And perhaps, in that vast batch of Netflix content, even lie the seeds of its own tent pole franchises.

This article originally appeared on Techonomy.

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