Will Disney+ Create Magic through Profitable Content and Commerce?

What a difference two years and a pandemic can make. 

In 2020, Disney CEO Bob Chapek reorganized its media and entertainment divisions in order to focus on streaming content. The creation of the Disney Media and Entertainment Distribution (DMED) organization under Disney’s Kareem Daniel was widely seen (and praised by writers such as me) as a bold way to save the company. After all:

• The pandemic had shut down its theme parks and movie theaters, closing off a huge source of revenue for in-person entertainment.
• The Disney+ streaming service, launched in late 2019 under Chapek’s predecessor Bob Iger, pointed to a hopeful future. 

Sure, no one expected Disney+ to be profitable until 2024. But with so many people turning online during lockdown living, the New Hollywood streaming industry seemed like an unstoppable force. And thus, the newera was born.

Well, by November 2022, the era had ended.

Disney+ was hemorrhaging cash to the tune of $8 billion in losses since its launch, alarming stock analysts. And, perhaps just as worse for a business fueled by creativity, the centralized DMED organization was clashing with Disney creatives. In a shocking move, Disney’s board ousted Chapek. Bob Iger, who had retired after serving as CEO for 15 years, was back. On his return, Iger announced that DMED would be reorganized and that creative control would be returned to the creatives instead of being centralized. And Kareem Daniel was ousted.

The changing of the guard has sent the entertainment world buzzing with speculation about the future of the entire Disney brand under Bob Iger, including close scrutiny of Disney+. The management of the New Hollywood streaming service was certainly not the only reason for Bob Chapek’s fall from grace, but it played a big role – notably the ugly lawsuit that erupted between Disney and Scarlett Johansson when Disney elected to stream Black Widow directly on Disney+ and skip a theatrical release.

We all know Bob Iger has many issues to address now, such as the pricing of the Disney theme parks. The two that fascinate me will determine the future of New Hollywood: content and commerce.

A Focus on Family-Friendly Content?

Under Bob Chapek’s watch, Disney+ produced some of its most popular titles according to Nielsen viewing data, including Loki and the second season of The Mandalorian.

Disney+ also began to air R-rated content, including movies such as Deadpool, Logan, and Deadpool 2.

As noted, Disney+ incurred enormous costs under Chapek, but the subscriber growth cannot be denied either: 12.1 million subscribers worldwide in the quarter that ended on Oct. 1, including 1.9 million in the United States and Canada, lifting its total count to 164.2 million. 

Disney now finds itself in a content arms race with its New Hollywood competitors, most notably Amazon and Netflix. Between Disney+ and Hulu, Disney spent about $15 billion on content in 2022, with Netflix spending about $17 billion, and Amazon, $14 billion, according to an IndieWire estimate. In his first town hall with employees, Bob Iger said that Disney’s focus must shift toward making its streaming business profitable, rather than concentrating on simply adding subscribers.

So, what will Bob Iger do? Will he scale back content spend, and, if so, how?

One option: focus on family-friendly, multigenerational content on Disney+ instead of opening up the platform for more R-rated content. With Disney taking complete ownership of Hulu (it’s set to buy out its share of Hulu in 2024 or earlier), the company could rely on Hulu for the content geared toward grown-ups.

It’s interesting to note that immediately upon Iger’s return, Michael Nathanson of MoffettNathanson, urged Disney+ to focus on family-friendly content. And Trip Miller, a Disney investor and managing partner at hedge fund Gullane Capital Partners, told CNN Business. “This consumer is family-friendly, global and multi-generational. That’s the beauty of Disney, right? It’s not just kids, it’s not just adults. When it’s working, it can be everybody.”

A family-friendly focus was certainly Iger’s original vision for Disney+. A good example: The Mandalorian, which was a hit coming right out the gate in 2019 because it built off the brand power of the Star Warsfranchise and introduced a storyline that demonstrated how family-friendly content can thrill and excite with a compelling story. 

Of course, competitors such as Netflix are succeeding with mature content such as Netflix’s Dahmer. But Iger does not want Disney+ to be another Netflix. The educated guess here is that the future of Disney+ will be multigenerational. As he wrote in his farewell letter to employees (or at least we thought it was farewell) in 2021:

Most important, never lose sight of what makes The Walt Disney Company such an incredibly special place… our unique culture marked by a shared sense of belonging, joy, camaraderie, and the pride that comes with doing what we do, and that is bringing people from different generations, ethnicities, and backgrounds together with our exceptional storytelling.

Whatever happens to Disney+ next, creativity will be rewarded. In a staff email on his return, Iger wrote that he will implement organizational and operating changes to restructure things in a way that “honors and respects creativity as the heart and soul of who we are.” Indeed, when he retired in 2021, he warned Disney executives “In a world and business that is awash with data, it is tempting to use data to answer all of our questions, including creative questions. I urge all of you not to do that.”

If Disney had relied too heavily on data, he noted, the company might never have made big, breakthrough movies like Black Panther and Coco.

But that was 2021. The days of “growing streaming at any cost” are over for Wall Street. Iger needs to right the ship and satisfy impatient investors. Oh, and we’re entering a recession if we’re not in one already. He’ll need to make some decisions quickly to recoup costs and generate more revenue on top of whatever Disney+ earns from its ad tier. 

Whatever he does, Iger has already spoken by dismantling the centralized approach to content creation. Since creativity is the heart and soul of the Disney brand, returning power to the creatives could unleash a renaissance.

Disney Prime?

Disney, like every company that owns a streaming service, needs to monetize its audience even more than Disney has been doing for decades with Disney entertainment and theme parks. So, Disney, like everyone else, is introducing an advertising tier.

But under Bob Chapek, Disney had also been trying to figure out ways to create cross-promotional opportunities for Disney+ subscribers – and Bob Iger may very well stay the course here.

For instance, in September, Disney launched a campaign to offer Disney+ subscribers a 20 discount on Walt Disney World lodging.

And Disney+ subscribers can now unlock special deals on the Shop Disney website.

In November, Disney announced a more ambitious pilot program to offer themed themed merchandise alongside certain Disney+ shows and films. For a limited time, Disney offered exclusive access to new products tied to franchises like Star Wars, Black Panther, and Frozen. The items included light saber collectibles and themed clothing available only on Disney+ profiles in the United States that were verified as belonging to users who are 18 and older. 

The company also seeks use data collected on fans during visits to Disney parks (e.g., what rides they ride the most) to curate offerings on their Disney+ accounts. As The Wall Street Journal reported, this could amount to an Amazon Prime type of experience – or a membership program with perks.

Disney already has a special program for superfans, the D23 Official Fan Club, which costs $99.99 to $129.99 a year and comes with access to exclusive events and merchandise. But what Disney is considering now is a membership program for more casual fans, nicknamed Disney Prime inside the company.

Kristina Schake, senior executive vice president and chief communications officer at Disney, told The Wall Street Journal, ““Technology is giving us new ways to customize and personalize the consumer experience so that we are delivering entertainment, experiences and products that are most relevant to each of our guests.  A membership program is just one of the exciting ideas that is being explored.”

In October, Chapek told attendees of The Wall Street Journal‘s Tech Live conference, “When a family comes to our parks, we know exactly what you did. Let’s say you stay a week. We got seven days, 24 hours a day. We know everything that you do in the park. And if you give us the permission and ability through the membership app, we’ll program your Disney+ experience, not according to what you watched last or what other people who watch this show, but to what you did, what you experienced.”

So, for instance, someone who rode the Pirates of the Caribbean ride, would then find Pirates-themed titles highlighted on their home page of Disney+ upon log-in. 

The “Disney Prime” label doesn’t quite ring true when it evokes a comparison to Amazon. Amazon Prime members get access to Amazon Prime Video. Similarly, Walmart+ members get access to Paramount+. But Amazon and Walmart are different businesses than Disney. They are retailers who want to sell a bunch of products, and entertainment exists to be a pull-through for products. Disney is foremost an entertainment company that maximizes the value of its content through merchandise sales. 

Instead, for Disney, a Prime membership would need to attract members first through great entertainment and experiences whether via Disney+, theme parks, lodging, Disney cruises, and the metaverse that Disney envisions. Disney won’t build brand love by selling things. Disney will build brand love by offering lovable experiences. 

All businesses now want to maximize the value of first-party data they collect from their customers, especially at a time when third-party data becomes less valuable in the era of consumer privacy. Regardless of whether Disney launches a membership program, it seems likely that under the Bob Iger era, cross-promotion based on mining first-party data will continue. It has to for Disney+ to become profitable. 

But, under Chapek, Disney received increasingly harsh criticism for treating its customers like products, as this poignantly written editorial discusses. Disney is already milking its loyal customers with higher prices to theme parks and increased Disney+ subscriptions costs. 

Will Bob Iger find a way to build on Chapek’s work? If so, my educated guess again is that he’ll focus on creating extended experiences and talk less about selling products. He was reportedly alarmed by the rising prices for admission to Disney theme parks that were imposed under Bob Chapek. I believe he will try to inject magic back into theme parks, and synchronized experiences with Disney+ will be one way to do that.

It’s going to be a crucial time for Disney to figure out the interplay between content and commerce without treating people like products.