Seventeen years ago, America On-Line (AOL), a brash dotcom company, acquired the long-time media giant Time Warner. At the time the marriage of the leading internet service provider and one of the largest holders of media and pictures in the world, was seen as the creation of a 21st century media giant and the future of how we would download, view and use, pictures, movies, news, etc. For those who hadn’t noticed, or weren’t old enough to remember, none of that happened. No one is downloading content. The marketplace has embraced streaming services. The deal is now considered one of the worst mergers in business history.
The Disney Company recently announced the acquisition of a small media company Bamtech, that created Major League Baseball Advanced Media and HBO Now, both successful streaming service offerings. The plan is to create a Disney, streaming service that will offer movies, real time sports and more. What’s going on here? Is the Disney Company trying to right the wrongs of AOL/Time Warner or is Disney simply following a strategy that Walt pioneered back in 1954?
When Walt founded WED I 1952 (now Disney Imagineering) to build Disneyland he had already put most of his personal wealth in on the line to start development, including using his life insurance policy as collateral for a $500k loan. As ideas for his new park poured out of him and became more challenging, it was clear that he was going to need a lot more money to make it happen. (Final would eventually grow to about $17m) All the banks turned Walt and Roy down. Famously, Walt said, “I could never convince the financiers that Disneyland was feasible, because dreams offer too little collateral.”
Undeterred, of course, Walt looked for creative ways to secure the financing he needed. He was always on the lookout for the next world changing idea he could put to use to further his own plans. Television in the ’50s had entered what is now considered its golden age. The Today Show, The Tonight Show, Kraft Television Theater, I love Lucy, The Honeymooners and other others had begun to attract large, weekly audiences. As he did throughout his career, Walt was able to look into the future and see that television would, not only, alter how we would consume entertainment, but was an ideal medium for promotion. At that point Walt had conveyed hid Disneyland dream as a story. Now he needed something more, something visually exciting. Fortunately he had a number of talented artists to turn to.
If you’re not familiar with the story, Walt tracked down WED artist Herb Ryman on a Saturday. He explained that he needed a promotional sketch to convince TV executives to finance Disneyland. Over the next 2 sleepless days, Walt and Herb developed the basic layout and design of the Park. With Ryman’s drawing in hand and a proposal, Walt went to the NY TV executives. He was turned down by the two leading networks, CBS and NBC. But, ABC, desperate for programming, agreed to provide a loan and a future credit line in exchange for part ownership of Disneyland and a promise that Walt would provide a weekly TV show for the fledgling network.
Initially ABC simply wanted to air existing Disney movies on the program. But, true to his character, Walt wasn’t going to be satisfied putting his name on something of mediocre quality. He wanted to do something more creative and a lot more promotional. With the agreement in place, Walt created the first combination of a media content provider and a reliable system to deliver it to a mass audience. Walt’s one hour of “streaming” programming, once a week, preceded the AOL/Time Warner debacle by 46 years and was 37 years before the first public use of the internet.
In addition to updates on Disneyland, the series featured edited or serialized versions of recent films including Alice in Wonderland. Disney was never afraid that TV would cut into film revenues, but would bolster ticket sales when the films were re-released. Original material like the Davy Crockett series would enhance and become part of Frontierland. The same approach worked for Tomorrowland and the “Man in Space” episode.
It wouldn’t be too much of a stretch to say that the original Disney/ABC partnership was successful. Disneyland was built, paving the way for Disney to become a successful worldwide theme park franchise which now provides about 20% of the company’s profits. The ABC Disney TV program was the second longest running program in TV history at 54 years and aired its final episode in 2008 (The show had moved to NBC in 1961). Disney paid back the ABC loans after just 6 years in 1960, giving the Disney Company full ownership of Disneyland. I would call that a model for a good business partnership. Both sides got what they wanted and made money on their mutual investments.
I think part of the strategy for the unnamed Disney streaming service is an attempt to undermine existing offerings from existing providers like Netflix and Hulu . But, it’s also possible that Bob Iger and the Disney board hope to accomplish what Walt did decades ago, kind of by accident, without making the same mistakes AOL/Time Warner made in the early years of the 21st century.
First, The Disney Company would own, operate or direct the delivery system and Disney’s existing library of popular movies, tv shows and documentaries. They could make deals for other content, but, unlike Netflix they don’t have to.
Second, Disney can develop and produce new content using exiting movie and TV production entities they own. With the growth and success of original movie and series development by Amazon, Netflix, HBO and others, there is money and market share to be gained from original series and direct to streaming movies. Movies which might have been released through Blu-ray only could now be added to the streaming service with less overhead cost.
Third, there are cross promotional opportunities that can be leveraged between the streaming service, TV, movies and even theme parks, books and merchandise. Disney already does quite a bit of this, but a subscription audience offers more information to mine and the opportunity to re-kindle and leverage interest in older properties.
Fourth, there is an existing audience for much of the content available today. So, unlike other services that must guess what audiences will want, the Disney service will start with an enthusiastic initial subscription audience.
Finally, the information from streaming service subscribers combined with what Disney already has already collected from its own website, theme park magic bands and other sources, improves the Company’s ability to do things like targeted marketing and discount offers. No one would dispute that the power of data unlocks opportunities for the entity that collects and owns the information. Disney would be adding to their already existing about existing and potential customers for anything within the Disney world.
The Disneyland TV series premiered four months before major construction started on the theme park. Walt succeeded in using the Disneyland TV series in three ways: To create excitement for Disneyland by featuring segments about each of the four lands and many of the attractions; Grow and keep the audience for movies and Disney characters to drive merchandising and audiences for future Disney projects; to promote upcoming Disney movies.
These are the same methods and activities that are used by modern media companies. The difference now is that instead of reaching an unknown TV audience of several million in Walt’s day, modern companies like Disney use our connected world to gather very detailed information about us, including our likes, habits, purchasing history and more. They can reach hundreds of millions of existing and potential customers with great accuracy and effectiveness.
Leveraging technology does come with plenty of risk. Innovation and the unknown factors which drive user interest and adoption are hard to analyze. Offerings like Instagram can come out of nowhere to eclipse existing offerings. Any remember MySpace now that Facebook rules the social media world? Walt’s gamble on TV could have met with a similar fate. Only will time will tell whether the Disney Company has made the right moves.