Recently, Paul authored a report that examines Disney’s launch of its direct-to-consumer streaming service Disney+. What’s the projected outcome of this investment? What are the revenue projections? How will Disney+ affect the corporate-wide business model of Disney? Paul shares takeaways from his research in this post.
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This week Disney launched Disney+, their direct-to-consumer streaming offering. They have been planning this move for several years and have repeatedly described it as “transformational” for their entire company. Will it work out that way?
The acquisition of BAMTech, giving them the technical capability to support a streaming offering, the launch of ESPN+, a streaming sports service, and most significantly the acquisition of the entertainment assets of 21st Century Fox were all geared towards supporting the launch of Disney+. The announced price point of $6.99 per month was seen by many as surprisingly low. Taking their own forecast projections for 2024 users, even at the high-end, the direct revenues from Disney+ do not at all support this offering as “transformational.”
Thinking this through, I realized something much more fundamental was going on here. Much of the focus of my consulting practice, Connolly Network Insight, has looked at the big IP networking companies such as Google, Facebook, Apple, and Amazon. The business model they use hinges on a deep, direct connection with every single one of their users. I call this a PCHP model (for Persistent Contextual Hyper Personalization.) It’s been amazingly successful for these four companies and it occurred to me that Disney+ is designed to let Disney join this club. Up until this this point, Disney has had various middlemen for each of their offerings standing between them and their customers. By going direct to consumers, a PCHP-based business model becomes viable.
By using the opted-in data from each of their users and applying deep learning, Disney can develop a very personalized, relevant, and hence valuable experience for their customers. The reason this becomes transformational is that they can take this knowledge and apply it to EVERY other part of their business, thus amplifying the impact of the direct to consumer connection significantly.
With this model, the transformational impact of Disney+ now makes sense: it drives increased revenues and profitability for every other part of their business. (This is also why Netflix is in a more problematic space. They do not have any other business to ”leverage back” and their poor financials to date can only be improved by significant price increase, which Disney has effectively capped.)
To drive the biggest leverage, Disney is clearly attempting to maximize user sign-ups by offering a shockingly low price, further discounting for long-term commitments, and bundling with Hulu and ESPN plus. The more users they sign up, the more valuable the deep learning-based data mining becomes to drive all of their product and service offerings and connect them directly to the users who most value them.
This is truly “why all the fuss about Disney+.”
More details about Paul’s report can be found here.