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The new Netflix-Disney universe

By Jonathan Webdale 11-08-2017

It’s been a busy week for Netflix. First came the US SVoD giant’s debut acquisition with the buy-out of Millarworld, the Scottish comic book company behind Kick-Ass and Kingsman. Then the firm revealed it was bringing David Letterman out of retirement to front a new chat show.

These announcements followed hot on the heels of others about new original series in India, Mexico and Asia. All of this coming after the company’s share price hit an all-time high last month on the back of stellar second-quarter results.

Then came the bombshell. On Tuesday, during its own quarterly earnings, Disney announced it would be pulling its movies from Netflix in the US as of 2019 and spending US$1.58bn on a digital platform to power the launch of its own global SVoD services.

The move will bring to an end a deal the pair signed in 2012 but which only came into effect last year, handing Netflix exclusive subscription streaming rights to Mouse House movies as well as those from Pixar, Marvel and Lucasfilm. It also put the kibosh on speculation Disney might look to buy the business (unless the strategy is to push down its price).

Titles like Captain America: Civil War, Rogue One: A Star Wars Story, Moana and Pirates of the Caribbean: Curse of the Black Pearl will all cease to be available to Netflix subscribers stateside. But there are plenty of other titles to come before the pact ends, including Avengers: Infinity War, Thor: Ragnarok, Black Panther and Star Wars: The Last Jedi.

Netflix has acquired Millarworld, the company behind the Kick-Ass comic book series that has inspired two films

Four of the above properties come from Marvel and through a separate deal, signed a year after the original Disney one, Netflix secured rights to make original TV series based on the comic book empire’s IP. These shows – Daredevil, Jessica Jones, Luke Cage and Iron Fist – have proven a huge hit for the company and it will retain the rights to these, as well as upcoming ones such as The Defenders and The Punisher.

But there has to now be a large question mark over the continuance of that relationship. Hence the Millarworld purchase, a firm whose founder had a hand in some of Marvel’s biggest hits including Captain America: Civil War, The Avengers and Logan. Millarworld has 15 titles that have yet to make the small- or big-screen leap (remember Netflix is in the original movie business too).

Netflix now has its own superhero universe to explore, and presumably its algorithms tell the firm that audience appetite for this type of content isn’t on the wane quite yet. It has a few more years yet to figure this out and to adjust to the loss of those existing Disney titles.

The news may have come as a shock to the market but it only shaved a small percentage off the streamer’s share price. Netflix investors are used to bumpier rides and the firm must have known this moment would come, even before the ink dried on the 2012 Magic Kingdom contract.

Yes, other content suppliers will likely follow Disney’s lead or at least start ratcheting up their demands in negotiations, but Netflix has been spending heavily to ensure 50% of its programming will comprise in-house originals within the next few years (Starz had to similarly recalibrate when Netflix snatched away its Disney movie rights). Yes, it is heavily indebted as a result, and pressure on the company to achieve that target has gone up a notch after the Disney decision. But, to some extent, the game is arguably already up.

Disney, which has already experimented with a direct-to-consumer offer called DisneyLife in the UK, will begin its global SVoD adventure stateside in 2019 before branching out internationally.

Netflix already has 104 million subscribers. More than half of these come from abroad, where its greatest growth potential still lies. Two years from now, in line with an accelerated local originals strategy and a string of local libraries more than willing to accept its licence fees, Netflix’s domestic/overseas subscriber balance will no doubt have shifted further.

Disney will have a long way to go to catch up and presumably it will only have Disney/Pixar/Marvel/Lucasfilm content as the basis of its offer (as well as ESPN, which is getting its own SVoD play). Of course, this is hardly something to be sniffed at. These studios are undoubtedly behind some of the greatest, most loved movies around and, along with the Mouse House’s TV shows plus a swathe of originals, the new service will make for a tantalising offer, featuring from the outset Toy Story 4, the sequel to Frozen and the live-action version of The Lion King.

Titles including Captain America: Civil War will be removed from Netflix US

The announcement came in the same week CBS said on its second-quarter earnings call that it would launch its existing CBS All Access VoD service internationally from next year, starting with Canada. It’s currently on target to pass four million subscribers in the US by year-end, featuring series including The Big Bang Theory, The Good Wife spin-off The Good Fight and upcoming sci-fi drama Star Trek: Discovery.

Direct-to-consumer is now the name of the game, but for US media incumbents it can be heavy going. HBO has been in the OTT business in territories including the Nordics, Eastern Europe, Latin America and elsewhere for a number of years now. Could its services be described as market-leading?

In a world that seems increasingly hell-bent (quite literally in the case of the paranoid egomaniacs presently running the US and North Korean) on insularity, a tendency toward increased ‘verticalisation’ – to borrow one of the more repugnant B2B bastardisations of the English language – seems inevitable.

But is it really what people want? Yes, Disney is a massive global brand, CBS and HBO less so, but Netflix, well, it defines a category. It has the prime-mover advantage the internet handed to a select few that set out with a laser focus to claim as their own a sector of the real estate it made available: Amazon in online retail, eBay in auctions, Facebook in social media.

The US studios had their chance with Hulu but adapting legacy business models to fit such an alliance was never going to be easy. At the same time, the licence fees being offered by Netflix – the kind of immediate, tangible cash that makes Hollywood happiest – were too tempting. Attachment to past practice and an inability to evolve at the same pace as technology meant Hulu stalled, while Netflix powered ahead with a singular vision and name that so clearly communicates what it does.

Certainly, the business is not infallible but the ramifications of Disney’s announcement are arguably greater for global pay TV providers. Incumbents like Sky in the UK, Ireland, Germany, Italy, now going OTT in Spain,  are already seeing their dominance challenged by Netflix and now Amazon in sports rights.

A few months after Disney signed its landmark Netflix deal, it forged another with Sky for a co-branded UK movie channel. Sky too has a deep relationship with HBO, but follow the current direction of travel and it’s not impossible to foresee a day when global streaming undermines the economic argument for such partnerships.

But what Sky and others – including Netflix – do so well is aggregate content from a variety of providers. The industry, like the world of which it is a microcosm, is experiencing unprecedented turbulence but is insularity the answer? Consumers will decide, if Donald Trump and Kim Jong-un don’t land their own bombshells first.

The comfort for both Netflix and Disney is that superheroes have never been more needed.







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today's correspondent

Jonathan Webdale Editor, & FutureMedia C21Media

Jonathan Webdale is a journalist with more than a decade of experience covering the international television business. He joined C21Media in 2004 after four years at New Media Age and oversees C21's online and social media presence, audiovisual output, daily news operation and special reports, plus the FutureMedia print magazine and annual conference.