Unpacking The Disney Announcement: Who Wins, Who Loses?

Disney made a couple of major announcements yesterday, stating that they would (a) be launching standalone OTT apps for ESPN and Disney, (b) pull some content off of Netflix (e.g., not renew the contracts when they’re up), and (c) take a majority stake in BAM, the software platform from Major League Baseball that’s become the hot platform for anyone building OTT apps.We’re going to take a look at all the moving pieces here and offer our sage TV[R]EV assessment.Netflix. This is not a real issue for Netflix. At least not the way it was laid out in yesterday’s announcement. Disney is pulling some movies from Netflix. Boo-fucking-hoo. Who watches movies on Netflix?(Okay, clearly plenty of people are watching movies on Netflix, but it’s not the primary reason anyone has the service, which lacks any first-run movies or even the Criterion catalog. People get Netflix to watch TV series, both originals and their vast library of network reruns.)Or to put it more succinctly, the absence of Disney movies from Netflix is unlikely to affect anyone's decision as to whether to subscribe to the service. What’s more, it’s unclear whether Disney-owned studios like Marvel will continue to produce original series like Jessica Jones for Netflix, said series constituting much more of a reason to subscribe than the ability to rewatch Mulan.So Reed Hastings can sleep well tonight.ESPN.  As we’ve written previously, ESPN’s subscriber loss issues are the result of cord-shaving, not of people deciding that they’re fed up with watching sports on TV.  If you look at the delta between the number of people leaving ESPN last quarter (2.9M) and the number of cord-cutters (600K), you might wonder what happened to those missing 2.4M households. Our assumption is that they downgraded their service to the most basic bundle, the one with just the local broadcast stations, because well, there actually aren’t any other bundle options that exclude ESPN.What’s more, we’re guessing that these viewers actually went to cut the cord permanently, and that the MVPD, rather than lose an upgradable TV and broadband customer altogether, told them that they would give them that basic bundle for free (for the first 18 months anyway) and that given the horrific state of over the air reception in much of the US, and you know, free, most potential cord cutters took them up on it.As for their new app… it’s really going to depend on the price. You see the new app doesn’t have the NFL or NBA. Just MLB, NHL and soccer. Which makes it way too easy for fans to dip in and out of the app (the overlap between say, hockey fans and baseball fans being pretty minimal.) Now if the app is just $5/month, lots of people will stick around because even in the off season there will likely be something on they want to watch, even if it's just steeplechase and for $4.99/month, it’s worth it. But at $10 to $15/month, there’s going to be a whole lot of churn. Especially if the app doesn’t even have SportsCenter.But given that the NBA and NFL are the two most popular leagues in America and that Amazon and Facebook are looking to sink their data-collecting claws deeper into said leagues, the decision to exclude them seems like a curious move. (Though in fairness to Disney, there may be myriad legal reasons for this.) So we're waiting to see the price point before making a call on this one.Disney.  The success of the Disney app is going to depend entirely on how well Disney does producing “must-see TV” for the next generation of kids. Because let’s be real: there aren’t a whole lot of adults who are going to pay for a Disney app.Now Disney generally does a stellar job with kid’s programming, but the rules are changing quickly. Let’s start with what we call the Dirty Little Secret of children’s programming: all those shows that are allegedly aimed at teens and tweens are being watched by markedly younger audiences. As in kids age out of Disney shows at around age 11 or 12. So hits like Hannah Montana and Wizards of Waverly Place were the domain of eight- and nine-year olds, not 15-year olds.Now Disney hasn’t done a great job over the past few years in coming up with hit shows for kids. Which is admittedly a tougher challenge in these days of YouTube stardom (and we all know how well that Maker thing went down.) Which is not to say they can’t or won’t come back, just that the success of that app is going to depend on how many parents of preschool and elementary school age kids are going to want to subscribe, which 100% depends on how badly their kids want to watch the shows that Disney is putting out there versus the shows that Nick and Netflix and Amazon are putting out there. Tough crowd.Sure the app will have lots of Disney movies on it, but as we mentioned earlier with Netflix, no one is subscribing just for the movies. Especially kids movies. (If your kid loves Aladdin beyond all reason, you will eventually just buy the movie from Amazon and leave it on their iPad where they can enjoy it—with headphones on—over and over and over and over again.)BAM. This is a smart move. Ever since HBO got BAM to build NOW, companies have more or less been lining up to beg BAM to allow them to hire them. And it would be an understatement to say there is a huge demand for OTT apps right now. So buying BAM will give Disney a brand new revenue stream and give BAM the capital it needs to expand so it can keep up with the tidal wave of demand.Apps In General. Something else we’ve opined about ad nauseum. But if you’re a consumer, an app-based interface can be pretty confusing, sort of like the internet before Netscape. There’s a lot out there, but no way to manage it or remember what show is on what network. This provides a big opportunity for the MVPDs, who don’t really make much money off of pay-TV anyway, but understand its value in terms of customer stickiness.If we ran an MVPD, we’d start selling off app bundles along with our broadband and then provide the overriding program guide that allowed viewers to manage their favorite shows from the apps and alert them when new episodes were out, maybe even throw in some social functionality for hell of it. It’s a win for everyone involved (consumers love that single billing feature) and should not be all that difficult to pull off from a tech standpoint.Data. For Disney, this is the real reason for the apps: they finally get data on all their customers. Email addresses, credit card numbers and IP addresses. So they can put out a range of products from addressable advertising (assuming there is advertising) to cross-screen marketing and of course use all that data to make better programming decisions. Plus there's all the Disney themed merchandise they can now target. That alone is reason enough to build the apps for networks like Disney who have zero insight into who their viewers actually are.So there you have it.Two big unanswered questions though: how much will the services cost and will there be advertising (and if so, how much and what type?)Stay tuned for details.