Disney and New Product Development: A Case Study on Disney+

How Disney is constantly evolving

“Innovate or die, and there’s no innovation if you operate out of fear of the new or untested” Iger (2019, p. 15).

Disney is one of the most instantly recognisable brands for both children and adults all around the world. From a simple design of drawing just three circles to form who we all know now as Mickey Mouse, Walt Disney’s empire was born. The ascension from a small studio in Kansas City, to a company worth $130 billion with 12 theme parks worldwide is truly remarkable. They have done so through wonderfully imaginative products, unique filmmaking, and by combining a "unique blend of entrepreneurship, creativity, innovation, and a relentless drive to bring out the best in his teams, Walt Disney created one of the most successful ventures in business history” McCullen, A (2019).

Disney has a history for constantly reinventing itself, identifying new pieces of innovation before any other company sees them. Like a phoenix, Disney have gone into the fire on numerous occasions and have risen from the ashes in new and more exciting ways each time. Disney were traditionally known for their animated one-reelers, which did not incorporate a soundtrack in the beginning. In 1928 the world was introduced to the timeless Steamboat Willie, the first animation with an integrated sound recording.

Another example of the company’s innovation can be seen in how Walt Disney moved into live action. Following the successes of Snow White and the Seven Dwarfs and Bambi, Walt had ambitions to move into live action. The company had fallen on hard times during the 1940’s as a result of World War II. A large number of the studio’s animators were drafted into the army, and many potential markets for their animated films were closed off during the period of the war. “Animated films required a lot of work and time to be created, and Disney had not been able to find a way to make them consistently profitable. Live action films, on the other hand, could be made much cheaper, quicker, and efficiently” Perno, G.S (2018). The story Disney decided upon as his first live action film was the 1883 novel, Treasure Island, by Robert Louis Stevenson. Prior to filming, the company had acquired a significant amount of British Pounds which they were unable to bring back to the United States due to tax reasons, therefore Disney chose to produce the film in England. The film went on to earn nearly three times its reported budget, proving to the film industry that the company were here to stay in the live action department.

As Reis (2011, p. 34) stated, the only way in which a company can achieve long term economic growth is if they create an ‘innovation factory’. Disney had to adopt an innovative strategy in order to develop a new, exciting product to stay ahead of the game and bring them into the 21st century. What product will Disney muster up in their innovation factory to expand its empire even further? The answer is Disney+, the streaming service that’s due to launch in the United States and Canada on November 12th this year.

Disruption in Media Business

Innovation in media business has experienced exponential growth over the last decade, further backing up Disney CEO Bob Iger’s statement of ‘If you don’t innovate, you die’. Disney needed to identify new and interesting ways in which to deliver their content globally, and it was vital for them to do it quickly. “Could we find the technology we needed to accomplish that and be at the forefront of change rather than simply being undone by it?” Iger (2019, p. 189).

Disney needed to disrupt themselves in order to transform and bring the company into the modern age. The next dilemma they needed to tackle was deciding between whether they should buy or build their own technology platform. Building their own platform would take several years, which they did not have if they wanted to stay ahead of the pack, so they eventually settled on acquiring one.

The company they identified was called BAMTech, who until Disney had acquired majority ownership of for $1.58 billion in 2017 (The Walt Disney Company, 2017), were known for perfecting the streaming services of Major League Baseball. Disney held a 33% stake in BAMTech up until the company’s annual board retreat in June 2017, where Iger presented Disney’s 5 year plan. He spent the entirety of the session debating ways in which they could disrupt themselves, when he then alluded to the notion that the company “would accelerate our option to buy a controlling stake in BAMTech, and then use that platform to launch Disney and an ESPN direct-to-consumer ‘over the top’ video streaming services” Iger (2019, p. 192).

There would be significant losses in fees from licencing of their content out to third parties, but the Disney board agreed unanimously to the plan, and in order for it to be effective speed was of the essence. Within two months of the board retreat, Disney had purchased control of BAMTech and immediately began plans on the development of their new direct-to-consumer product, Disney+. The next dilemma to tackle was to decide what content Disney would offer its subscribers through the new streaming platform.

The building blocks towards Disney+

Pixar

The procurements of content for Disney+ were a slow burner, dating back to 2006 when the company purchased Pixar, which marked a landmark deal between newly appointed Chief Executive Officer of Disney, Bob Iger, and the CEO of Pixar at the time, Steve Jobs. “After Jobs was ousted from Apple in 1985, he bought Pixar (at the time called Graphics Group) from Lucasfilm for $5 million. He became the company's largest shareholder and CEO until Disney bought it for $7.4 billion in 2006” D’Onfro, J (2015).

This was a very important deal to get over the line for Iger. It was his first order of business as CEO, and he needed to get it right. According to a study carried out by Dan Marcec (2018), the average tenure of a Fortune 500 CEO was only 5 years, so Iger knew he needed to be bold and act fast in order to survive in the job. Before the acquisition took place, Disney were in a contract to distribute 5 Pixar movies, and also had the rights to distribute any possible sequels. Steve Jobs and former CEO of Disney, Michael Eisner, were involved in heated discussions over their current contract, and never saw eye to eye after Eisner openly criticised the tech industry for their lack of respect to copyright law with content. Steve Jobs added more fuel to the fire when he suggested that Disney was ‘creatively broken’ which enraged Eisner. The back and forth between the two came to an end with Jobs declaring the partnership with Disney would cease once their current contract had expired. In order to get Steve Jobs back onside, Iger ensured that the only way the deal could work was if the company culture of Pixar remained the same. “If we don’t protect the culture you’ve created, we’ll be destroying the thing that makes you valuable” Iger (2019, p. 143).

The acquisition of the company aided both sides immensely, especially Disney, whose Animation Studio was in decline during the second half of Eisner’s tenure as CEO. The creative Pixar teams behind animated classics such as Toy Story, A Bug’s Life, Finding Nemo and Monster’s Inc would join the Disney family, and could focus solely on their computer animated films, rather than worrying about investments costs associated with merchandise for their films. Disney gained access to Pixar’s back catalogue, thereby acquiring the first building block towards Disney+.

Marvel

Next in their pursuit for global media entertainment dominance, Disney looked towards one of the world’s leaders in the comic book industry, Marvel Entertainment. To get a sense of the impact of acquiring the company and the majority of its comic assets in 2009 for $4 billion, you just have to look at Disney’s share price. “Disney stock was $26 just before the company acquired Marvel; it is now over $100. There have been other factors involved in the increase, obviously—including ESPN and Pixar—but Marvel is a big part” Ingram, M (2015). As of the 7th of October this year, Disney stock is now valued at $130.27 per share on the New York Stock Exchange.

Of the 23 movies include in the Marvel Cinematic Universe, Disney have distributed 16 of them and “has earned more than $18.2 billion at the global box office from Marvel movies since purchasing the company in 2009” Whitten, S (2019). The phenomenal collection of Marvel films further raises the standard of what Disney+ will be able to offer its customers as a product.

Lucasfilm/Star Wars

Not satisfied with just owning industry leaders in both computer animation and comic books, the next target Disney had in its sights was Lucasfilm, the company founded by the visionary mind behind the Star Wars saga, George Lucas. “The deal, worth $4.05 billion in cash and stock, was announced Oct. 30, 2012 and marked the beginning of a new era in the Star Wars franchise” Whitten, S (2018). This is another mammoth deal for Disney, as they have already recouped all of their $4.05 billion investment in Lucasfilm through the box office successes of the four Star Wars movies they have produced to date. According to Box Office Mojo (2019), the four Disney produced movies have made $4.85 billion worldwide, with another Star Wars movie coming out this December. What is even more amazing is this is before factoring in any of the Star Wars merchandise the company can now profit from going into the future. The Star Wars universe, and everyone’s favourite archaeologist, Indiana Jones, could now be found in Disney+.

21st Century Fox/National Geographic

The final piece of the puzzle came to fruition only this year, the acquisition of 21st Century Fox. Iger was convinced that “what Fox had in terms of content, global reach, talent, and technology would be transformative for us” Iger (2019, p. 205). After months of negotiations, the acquisition became final on the 20th of March 2019. “After recognizing the tech threat early and making three acquisitions that revolutionized the media landscape (Pixar, Marvel and Lucasfilm) Mr. Iger rolled the dice at age 68, on the cusp of retirement, and beat out Comcast with a $71.3 billion bid for a chunk of 21st Century Fox” Dowd, M (2019).

One of the conditions of the takeover, which CEO of 21s Century Fox Rupert Murdoch insisted upon, was that Bob Iger continue in his role as CEO past his intended retirement date in June 2019, which he agreed to stay on until the end of 2021. Of the many assets that were included within this gargantuan takeover was a controlling stake in National Geographic, thereby adding another pillar to Disney+.

 The acquisition of 21st Century Fox marked a considerable milestone in Bob Iger’s 15 year long journey as CEO. What he has done in acquiring all of these fantastic properties and putting them all under the Disney umbrella and then bringing all the synergy of all the brands together has elevated all of those individual brands into something bigger than they would have been on their own.

“With more than 7,500 episodes and 500 films from its back catalogue within the first year, it will be an ostensibly permanent home in the Cloud for all things Disney. Tellingly, the D23 strategy saw a branding label split the platform's library into five distinct categories: Disney, Pixar, Marvel, Star Wars, and National Geographic” Feldberg, I (2019).

Now that Disney has such an extensive back catalogue to work with, how well can they compete with others in the industry?

The streaming service giants

All eyes are on November 12th for the launch of Disney+, when the company will officially enter the streaming service war. The undisputed heavyweights at the top of the streaming service industry are Netflix, Amazon Prime and Hulu (which Disney own a majority stake in after the 21st Century Fox takeover), so how are Disney planning to compete with their content?

When the announcement was made about Disney+, it was quickly pointed out that the content on offer would be rolled out between what has been distinguished as “launch content” and “year one content”.

As the graphs show above, Disney+ will be able to offer its subscribers 100 movies and about 5000 television episodes from its launch, then over the course of the next year as the service develops, consumers will be able to rediscover over 500 movies and nearly 7500 television episodes (Disney, 2019).

How do these numbers measure up to those of Netflix and Amazon Prime? The short answer; not very well. The 500 films and 7500 television episodes Disney+ will have to offer after year one “represents just 16% of Netflix’s U.S. catalogue of 47,000 TV episodes and 12.5% of the Netflix movie library of 4,000 titles” Spangler, T (2019).

The difference in the amount of content Disney will offer from year one is visibly smaller compared to other streaming services when represented on the two graphs above per Ampere Analysis.

How can Disney+ succeed?

Considering Disney have an uphill battle in terms of catching up to the amount of content on offer when compared to their rivals, Disney do have a number of factors on their side. One of the most critical factors on the company’s side is the quality of the content they have to offer their subscribers.

According to a study carried out by Ampere Analysis, the year one content that Disney+ will be able to offer ranks above the content Netflix and Amazon are currently streaming. Disney are playing on the phrase of ‘quality over quantity’ when it comes to Disney+ as a product. “The U.K.-based firm compared the top 100 original-labelled titles (movies and TV seasons) currently available across top U.S. SVOD (subscription video on demand) platforms. The Ampere Rating grades content on a scale of 1-100 (with 100 being the best) based on a proprietary algorithm that assesses user opinion of individual titles” Spangler, T (2019). The only company currently offering higher rated content in comparison to Disney is HBO, the graph below shows the Ampere rating differences between the companies;

One of the many advantages that Disney has in owning the likes of ABC and Fox is that they can eliminate any advertisements for their rivals on their networks. According to Bruell and Vranica (2019) of the Wall Street Journal, Disney are banning all advertisements from Netflix across all of their entertainment networks, basically telling them that they do not need their money. Considering that Netflix do not offer the opportunity to advertise on their platform, the decision to ban Netflix from advertising on any Disney network seems simple.

In a recent interview for Good Morning America (ABC News, 2019), CEO Bob Iger sat down to discuss what is the magic behind Disney+ that will separate it from other streaming services; “Those brands and the connection people have to those brands. This sets us apart from the rest of the world because of that connection that people have to these beloved storytellers”. One of the many strengths that Disney can draw from is the fact they own so many different properties that people love. Whether you’re a Star Wars fanatic, or grew up with your room adorned with Lion King merchandise, Disney can attract more and more subscribers in through the power of nostalgia, and will use this power to its advantage against its rivals in the streaming service industry.

Kevin Mayer, who holds the role of Chairman for Disney’s Direct-to-Consumer and International divisions, demonstrated the use of the product at its investor’s meeting held on April 11th of this year. Towards the end of the demonstration, he announced that Disney would be selling the product at a monthly price of $6.99, or an annual price of $69.99, which works out as getting two months for free. Slattery (2019) stated that one analyst who attended the investor’s meeting reported a “collective gasp in the room”.

Netflix’s standard, and most popular, pricing plan comes in at a cost of $12.99 per month for their subscribers, so Disney’s pricing plan is considerably lower. “Disney’s pricing could undercut a core part of the Netflix narrative, that Netflix can turn customer growth into earnings growth by raising prices once subscribers plateau” Sherman, A (2019).

As of the second quarter of 2019, Netflix now has 151 million subscribers (Statista, 2019). Disney will have to have a strategic plan to roll out the product globally in order to gain subscribers quickly. The company’s global roadmap was showcased at the April investor’s meeting to demonstrate this plan.

Disney+ Global Roadmap

Considering the scale of the development going into the product, a number of factors have to be taken into consideration in regards to the international launch plans. The video (What’s On Disney Plus, 2019) of the product announcement on April 11th explains the 4 factors that were laid out for the product’s release timeline, as shown on the graphic below; Key Content/Availability, Consumer Demand, Tech Platform/Product Readiness and Distribution Partnerships.

(i)            Some of Disney’s content is currently licensed out to third parties in different countries around the world, which are due to expire between now and 2023. As a result of this, markets are being prioritised based on where Disney’s key content is available, in order to provide the best product from launch.

(ii)           Countries where consumers have demonstrated a high demand for the product on offer are also being prioritised on the timeline.

(iii)         The time required to ready the company’s technology platforms for payment methods, rights management, customer service and content delivery will vary from country to country.

(iv)          Disney have also allotted extra time to countries where the company believes they will need to launch the product with distribution partners, in order to tie in with their platforms.

Based on all these factors, Disney has confirmed the following launch timeline for the Disney+ product globally;

-      North America will be the launch base of Disney+ on November 12th, in the first quarter of the company’s fiscal year for 2020.

-      Disney+ will roll out in Western Europe between Q1 and Q2 of fiscal year 2020.

-      Asia-Pacific will be given a longer timeline, beginning in Q1 in 2020 all the way to Q4 in 2021.

-      Eastern Europe will then begin streaming between Q1 and Q4 of fiscal year 2021, followed by Latin America in Q1 of the same year.

Future plans for Disney+

Disney’s treasure trove of intellectual properties ensure that Disney+ will be here to stay, but what are the company’s plans for building upon its new product? Netflix and Amazon Prime are renowned for their original content, which have garnered numerous Emmy award wins and even Oscar nominations. Disney are not shying away from the original content market either, and announced a host of original shows that will debut on the platform over the next couple of years. “Though news about the Disney+ pipeline has been trickling out since early 2018, D23 offered the most panoramic view to date of what we can expect” Berman, J (2019).

Some of the shows announced at the D23 expo this August include 2 new Star Wars shows, ‘The Mandalorian’ and an Obi Wan Kenobi series, 3 Marvel shows and 3 live action remakes of Disney classics. In a recent interview with Edgar Alvarez (2019), Michael Paull, president of Disney Streaming Services, stated that “we want to delight consumers with the product. But, really, in the end the product is the content”.

Having these five companies, Disney, Pixar, Marvel, Star Wars and National Geographic, all under one roof, is a remarkable achievement. It will mark the end of a long and strenuous development journey when the product launches in November, but this is also when the real work begins. Disney+ may be the company’s most ambitious one yet, the short term losses in licensing would be substantial, but the prospect of the long term gains are too much to ignore. The direct-to-consumer market will be blown open this November, and Disney are aiming to come out on top.

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