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  • Writer's pictureNick C.

Disney is not losing sight of what matters: Content… and profit

Updated: Feb 2, 2021

Last week Disney unveiled some key announcements at its 2020 Investor Day. What gathered the most news is not surprisingly the plethora of new content from Marvel Studios, Lucasfilm, Disney Animation and Pixar. Those paying close attention will also have notice that prices on Disney+ are about to increase by 14% (a dollar increase to USD 7.99 per month).

Having launched just over a year ago, this is the first price hike for Disney+. While many consumers will be disappointed with the news, five revenue management principles make it noteworthy:

1. Increase your prices

The Oracle of Omaha, Warren Buffet, once famously stated “the single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you've got a terrible business.”

Disney knows its got a winning proposition and is therefore asserting its pricing power. While it may not have the ability to raise its prices yearly without creating customer churn, or at least dissatisfaction, its move follows an earlier Netflix announcement of a dollar increase to USD14. Content is expensive to create and the industry needs to generate higher profits to sustain itself.

2. Demonstrate value

People don’t mind paying for value, the trick is to effectively demonstrate to your customers that they are not worst off. On that front, Disney is not only demonstrating value, but also creating a hype around Star Wars and Marvel, which follow a winning formula. These studios are responsible for some of the biggest box office hits of all time, including three of the top five.

The audience clearly exists and wants more content created. The announcement of seven Marvel TV series and ten ongoing Lucasfilm projects alone answers that call.

3. Build a strong customer base

Let’s talk about the audience. At launch, Disney set a goal of 60 to 90 million subscribers by 2024. As of December 2nd 2020, it counts 84 million subscribers, smashing its own target four years ahead of schedule.

The streaming service market is one of scale, not necessarily a “winner-takes all proposition” but one where there will need to be a natural concentration of players due to the huge cost of content licencing. To survive the Streaming Wars, players will need two things: audience and margin. Audience: check; moving on to step 2.

4. Use bundles to target different needs segments

Another interesting announcement is Disney’s bundle offer which will include Disney +, Hulu and ESPN for $18.99 per month, offering roughly a $6 saving.

By targeting key customer needs, Disney is showing once again its marketing genius. Indeed, I would argue that when it comes to streaming needs, you will find four core market segments which can be further divided by usage intensity: news, sports, entertainment and kids content. While news is not a category offered by streaming service platforms, it is arguably the case due to linear TV being a much more suitable channel (pun intended) for that purpose. CNN and Fox News have built their audiences on that premise. By adding ESPN and Hulu to the bundle, Disney is attempting to cover the largest and most attractive market segments since it already dominates the kids content segment.

5. Experiment new monetisation paths

Companies that innovate are the ones that thrive, and innovation can sometimes take the form of different monetisation models.

Disney first offered its new animated movie Mulan exclusively on Disney+ for subscribers that were willing to pay a $29.99 premium. This allowed fans who paid for the privilege access to the content in early September, three months before it then got released for free as part of the rest of the Disney+ catalogue.

This approach mimics Universal releasing Trolls World Tour as a $19.99 digital rental, skipping movie theatres during the COVID lockdown period in April. This monetisation route made over $100 million in the first three weeks, clearly challenging the traditional box office model, although somewhat due to the unusual COVID trigger.

The big picture

According to a September 2020 SVOD Forecasts Update, the SVOD market size will reach $100 billion by 2025, a 100% growth on the $50 billion of 2019. And while, SVOD growth will in part be due to global adoption, the US market is still expected to represent 42% (as opposed to today’s 49%) of the overall revenue.

The prize is attractive for whoever survives the Streaming Wars, provided they can make it a war of value instead of falling into the price war trap so many industries fall prone to.

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