Disney, Broadcasters and Direct-to-Consumer: A Whole New World?

By Matthew Walters – @matthew_walters – matt.walters@decipher.co.uk

“This is the future, in many respects…we’re seeing more and more opportunities to reach consumers directly, and not through middlemen…this [DisneyLife] is a great example of our strategy to utilise technology to connect with consumers in more direct and compelling ways, something that only Disney can do.”

 Bob Iger, Chairman and Chief Executive, The Walt Disney Company
October 2015

Head and shouldersChristmas is almost upon us, and it seems apt as 25th December gets ever closer to be discussing the company behind some of the festive season’s most well-known films – think Santa’s Workshop (if you haven’t seen it, you must), think Tim Allen in The Santa Clause, and think Michael Caine’s Ebenezer Scrooge in The Muppet Christmas Carol.  Many years and many miles from the streets of Dickensian London, it was on a fourth-quarter call with investors last month that Bob Iger – the man atop the Disney empire – fielded questions from analysts on two issues of strategic importance to Disney, one current and one future.

Iger firstly remained optimistic about the prospects of the Disney-owned ESPN sports broadcaster after the recent drop-off in subscriber numbers that sent tremors through US media stocks in the Autumn.  But secondly, and more importantly for our purposes, he also talked up the prospects of the new DisneyLife subscription streaming service, which launched exclusively in the UK a couple of weeks later.  He claimed that Disney is “very interested” in taking content direct to consumers, and – perhaps revealingly – said that this would be “something ultimately that you’ll see more of”.

Fresh from its UK launch late last month, DisneyLife is a subscription streaming service – priced at a monthly £9.99 – that offers subscribers access, among other things, to film and television content from Disney’s catalogue (past and present), selected music titles, games and themed apps.  At the time of writing it’s available on Android and iOS mobiles and tablets, desktops and laptops, Apple TV, Android TV smart devices, and can be used with Google’s Chromecast streaming dongle.  Though Star Wars and the Marvel catalogue are conspicuous by their respective absences, this is quite literally a service that serves to its subscribers everything from The Three Little Pigs to The Wizards of Waverley Place, via The Little Mermaid.

The launch of DisneyLife follows a busy eighteen-month period in which players across the value chain – from studios and rightsholders to broadcasters, platforms and aggregators – have, with varying degrees of success, explored, tested and tried new ways in which to go “direct” to the consumer.  In some ways, as I argue below, the arrival of DisneyLife heralds a new generation of these services. Here we seek to trace the evolution of this “direct to consumer” model, and locate DisneyLife’s place within it.

The many guises of “direct-to-consumer”

First things first, let’s go backwards to go forwards.  As with any new term or concept in the industry, the words “direct to consumer” have been used – correctly and incorrectly – as an umbrella term to mean any number of things in the last few months.  A brief survey of how this description has been applied recently is in itself a fascinating case study as to how broadcasters, platforms and aggregators are attempting to re-evaluate and ultimately reshape their relationships with end consumers.  It is worth us reflecting, if only for a moment or two, on the different faces “direct-to-consumer” wears if only to identify the type of proposition we’ll discuss here, and to discount the others.  Each of the below almost certainly deserve fuller exploration, and could easily fill individual blog posts by themselves:

Free-to-view and free-to-use, companion “second screen” services

These come in one of three forms, only one of which we’ll discuss here.

Such services sometimes appear as broadcaster- or platform-specific “TV Everywhere” services, where a user must provide credentials – often relating to a pay TV package – to gain authenticated access to primarily VOD, but increasingly live, content.  Both of these are dealt with below.

The main thrust of this category are the free catch-up players offered by broadcasters – the big names in the UK including the BBC’s iPlayer, ITV’s recently rebranded ITV Hub, Channel 4’s (also recently rebranded) All4, and Channel 5’s Demand 5.  Though pay elements have been introduced – there is a premium, ad-free version of ITV Hub, for example – these remain at heart free for all to access.

“Unbundled,”, “pay lite” platform or platform-like subscription streaming services that feature live and on-demand content

These services, often offered by platform or platform-like players, take pay channels normally distributed by conventional means – satellite, cable, digital terrestrial – and, usually for a light monthly or annual fee, offer live and on-demand access to content from a subset of channels or broadcasters normally carried as part more “traditional” pay TV packages. Though free examples of this do exist – think Simplestream’s TVPlayer in the UK – these are predominantly pay services.  The best examples in the UK are Sky’s Now TV and Simplestream’s TVPlayer Plus, in the US Dish Network’s Sling or Sony’s PlayStation Vue.

Aggregator or “pseudo-platform” sites (e.g. multichannel networks) in which broadcasters sometimes have a commercial and/or financial interest

Two things are implied here.

The first are services, sometimes owned or operated by a consortium of broadcasters or broadcaster-like players, providing to users a mix of primarily on-demand content from across the participating players.  The best example of this is Hulu from the United States, respectively one-third owned by NBC Universal, Fox and Disney-ABC.  Each provides a selection of its content to the service, with different content available dependent on the subscription tier a user chooses to take.

The second, and much newer, specimen is that of the multichannel network.  These tend to be entities sometimes owned or part-owned by bigger broadcast or platform players, but appear for all the world to be operating independently and under a distinctly different brand.  They have a particularly prominent social media presence.  These provide a selection of on-demand content to users, sometimes (in some cases, often) specifically commissioned or created for the service.  One example is Whistle Sports, in which Sky has both a working and financial presence.

Standalone, over-the-top subscription streaming services offered directly by major sports leagues

Precious few examples of these exist in the UK. Perhaps the best example is UFC.tv, offered by the Ultimate Fighting Championship (also offered internationally).  It provides across its martial arts portfolio subscription access to live events, documentaries, interviews, and on-demand access to archive footage.

Interesting examples can be found Stateside.  MLB.tv, covering Major League Baseball, has existed in various forms since 2002.  Its Basic tier is confined to PCs and laptops, while its Premium one extends across smart TVs, blu-ray players, US TiVo set-top boxes, major games consoles, and streaming devices.  MLS Live – a similar service – provides streamed subscription access to live and on-demand content from Major League Soccer, while the WWE Network service continues to grow both in terms of its popularity and its subscriber base.

Broadcaster or third-party electronic sell-through services, offering rental and purchase options

These are broadcaster “stores” offering television and film content for rental or purchase. The recently launched BBC Store is a good example of this.

“TV Everywhere” companion second-screen apps, offered by broadcasters and/or platforms

As I mentioned above, these come in two flavours: offered either by the broadcasters or themselves or by platforms. They key element is that a user must provide an authenticated log-in in order to gain access.

Standalone, over-the-top subscription streaming services offered by broadcasters (no additional pay TV subscription required)

And it is this final model that we will explore below.

This blog purports to trace the development of this broadcaster-led, subscription form of direct-to-consumer proposition, through what I believe to have been at least two generations – and, with the arrival of DisneyLife into the UK market, potentially now a third.  Given the pace of innovation in this part of the market, and the sheer number of new releases or announcements the second half of 2015 has seen, this blog runs the risk of being out-of-date as soon as it is written.  Nonetheless, we press on.

First generation direct-to-consumer: “pure” on-demand

The first generation of broadcaster direct-to-consumer services has had a near exclusive focus on on-demand, often back catalogue, content.  These include services such as Feeln, launched in the US by Hallmark in 2007, providing subscribers – for a monthly outlay of $4 per month – with access to ad-free, on-demand Hollywood films, documentaries and original short films.  Feeln has expanded from an original PC/laptop existence to now find itself on Samsung smart TVs, iOS and Android mobiles and tablets, and streaming devices including Apple TV and Roku.

HBO Now on Fire TVPerhaps the most high-profile addition to this suite of services is HBO’s HBO Now (pictured left), launched in October 2014 – a standalone subscription proposition that stands apart from its TV Everywhere app, HBO Go.  HBO Now, available for a premium $14.99 per month, offers access to a variety of on-demand content from HBO past and present, including series, films, sport, comedy and documentaries.  It also makes available new content on an on-demand basis at the same time it is premiered on live television.  Unlimited streaming is available across a variety of supported devices, which include PCs and laptops, iOS and Android mobiles and tablets, and streaming devices including Apple TV, Amazon Fire TV and Fire Stick, and Roku players.

Second-generation direct-to-consumer (a): genre-focused, à-la-carte on-demand

Second-generation direct-to-consumer services from broadcasters appear to have developed in two distinct ways.

The first is in the arrival of narrow, genre-focused services providing access to only a specific element of a broadcaster’s portfolio – often resultingly accompanied by a lower price point.

Noggin is a new mobile subscription service for preschoolers.Examples of these are arriving into the market all the time.  March saw Nickelodeon launch Noggin (pictured right), a $5.99-per-month subscription service aimed at young children and their parents, available in the United States and some Pacific and Caribbean islands.  It’s available on streaming devices and mobile devices across the iOS and Android operating systems.

Two interesting things have happened with Disney here – one actual, one potential.  Earlier in the year, ahead of the ICC Cricket World Cup, ESPN launched the ESPN Cricket 2015 subscription service – which offered live and on-demand access to the tournament.  It was available across iOS, Android and Roku devices.  Such a service potentially points the way ahead for ESPN.  Iger has previously spoken of the “inevitability” of ESPN peeling away from traditional pay TV bundles.  Interesting, last October upon renewing its rights agreements with the NBA (National Basketball Association), ESPN acquired over-the-top rights that would allow it to create an online subscription service for out-of-market NBA games.  It hasn’t yet, but there remains the potential it will.

NBC have also got in on the act recently, announcing the launch of Seeso, a $3.99-per-month comedy-specific SVOD service.  It promises to offer users everything from 30 Rock to The Office, with Evan Shapiro – NBC Universal’s EVP for Digital Enterprises – claiming that a “curated experience…can help viewers find good stuff they might not or cannot find”.

Indeed, Shane Smith – the co-founder and CEO of Vice Media – expects the real growth in the streaming market in the coming months to be in these specific, tailored services.  “It’s pretty obvious where everything is going,” he said recently.  “It is going a la carte…the offerings out there will be many and they will be varied. It may be more expensive if you want everything. But then it may be cheaper if you just want your stuff.”

Second-generation direct-to-consumer (b): combined live and VOD propositions

The second strand of this second generation of services has seen broadcasters package together live and on-demand content from their channels in a single subscription proposition.

Across Europe, perhaps the two most notable examples of this have both come from Discovery Communications – Eurosport Player, and more recently DPlay.  Eurosport Player, originally launched in 2008 and available in 52 markets globally (including the UK), provides unlimited streaming to live and on-demand Eurosport content, and was further bolstered in June with the launch of new features, including the ability to choose specific camera angles.  Discovery claim that the service is “not affecting…viewership on Eurosport at all”, and have announced plans to acquire “specialty rights at a low cost” to strengthen the service’s core proposition.

The latest member of the Discovery family, DPlay, initially launched in Norway last year, and offers general entertainment, live sport and reality content from its channels.  It is now available in Denmark, Italy, and Sweden (though notably not the UK), and plans have been announced to launch in the Benelux in early 2016.  Across both DPlay and Eurosport Player, Discovery has set itself the target of a million subscribers worldwide by 2017.

CBS All AccessThe US has seen the arrival of similar combined live and on-demand offerings from broadcasters in the form of Showtime’s standalone subscription service, and CBS’s All Access subscription service (pictured left). For $5.99 per month, CBS All Access offers live and on-demand access to thousands of hours of daytime and late night CBS content, together with local CBS stations from over 110 of the US’s markets.  Launched in October 2014, it’s available across PCs, laptops, Android and iOS mobile and tablet devices, and streaming devices including Apple TV and Roku players.

A new, third generation of direct-to-consumer: beyond video

And so to DisneyLife, which one could argue, as I do here, moves broadcaster direct-to-consumer services into a third, and new, generation: one that is beyond video.

DisneyLifeFor a business of firsts, it would seem Disney occupy lone territory at the moment.  The industry won’t forgive me for introducing a new term into the discussion (let alone one that can be abbreviated to four letters ), yet DisneyLife is positioned so uniquely in the market – a subscription offering giving access to film titles, television series, music, e-books, and dedicated (often themed) app downloads – that it almost warrants its own category.  This isn’t traditional subscription video-on-demand as we’ve come to expect it.  By virtue of what it offers, DisneyLife is something richer than that.  It’s almost subscription media-on-demand – SMOD, if you’ll allow me to stir my alphabetical soup for a moment or two.

And what’s become increasingly clear from the last few days is that DisneyLife’s evolution, and its ambitions, don’t stop at Land’s End or John O’Groats.  Just last week, Disney announced that is to partner with Alibaba – the Chinese e-commerce conglomerate – to launch DisneyLife in China.  The multi-year agreement will see the service feature film titles from the Disney and Pixar back catalogues, television series, ebooks and games, amongst other things.  Unlike its British cousin, the Chinese DisneyLife will require a dedicated piece of hardware – a rumoured Mickey Mouse-themed streaming device, which will ship from late December at a cost of $125 with a one-year DisneyLife subscription included.  Disney is choosing its markets carefully, yet one senses the march of the DisneyLife and similar Disney-themed services has begun.

To infinity…?

Which leads us neatly back to DisneyLife in the UK.  How DisneyLife performs in the UK will be both interesting and instructive to us interested observers for a number of reasons.

The UK streaming service market, it goes without saying, is a congested one.  Disney will not only be pitted into competition with the market’s usual suspects – Amazon Instant Video and Netflix, among others – but will seek to grow in a UK SVOD market whose growth is already slowing, and – according to Decipher’s latest Mediabug research – may even plateau after one last rally this Christmas.  Disney, of course, licenses a proportion of its television and film content to these third-party SVOD services, something Iger admitted in a recent earnings call was positive for the Disney business, but would “cut back” if it appeared to be “doing damage long term”.  He and Disney will hope that DisneyLife’s cross-media appeal – the fact it offers music, e-books, games and apps beyond just television and film content – will prove initially attractive to as yet untapped SVOD consumers, and will allow it to differentiate itself to compete for existing SVOD subscribers against its closest competitors.  Disney could argue that it’s these additional features that justify its premium price point: £9.99 per month, a full £4-per-month more than Amazon Prime Instant Video, £4 more than Netflix UK’s entry-tier subscription and £1 more than Netflix’s Premium package (which allows, where available, for UHD streaming).

Price aside, it’s a clearly established, though often conveniently overlooked, fact that a substantial proportion of current SVOD subscribers in the UK also take pay TV, and this pay TV “ownership” amongst SVOD subscribers is increasing, according to Decipher’s latest Mediabug research.  Mediabug Wave 7, recently published, showed that 43% of SVOD subscribers also subscribe to Sky, 23% to Virgin, 8% to BT TV and 7% to TalkTalk TV.  DisneyLife finds itself in a veritable “perfect storm” in this instance: if it isn’t seeking to persuade existing Netflix or Amazon Prime Instant Video customers to churn from – or supplement – their existing SVOD subscriptions with a new DisneyLife one, it’s facing up to the very real prospect that a substantial proportion of these subscribers already take pay TV subscriptions, and may indeed have access to Disney’s film and television content through these means.

Indeed, just a couple of months ago Disney extended its deal with Sky to secure first-run rights to Disney’s films for a duration described as “multi-year”.  The agreement sees Sky hold the exclusive pay TV rights to the films for up to 18 months, though the exact length varies by title.  The Disney deal is one of six first-run deals has with the major Hollywood studios – Sony, Twentieth Century Fox, Paramount, NBCUniversal and Warner Bros – and has given rise to the now two-year-old Sky Movies Disney channel.  It also, perhaps ironically, makes available Disney films via Sky Movies to eligible paying customers of Sky’s closest pay TV competitors – Virgin Media, BT and TalkTak – due to the nature of the wholesale agreements Sky has in place with these platforms.  Iger indicated in his recent fourth-quarter that the launch of DisneyLife should in no way throw into doubt Disney’s commitment to carriage as part of pay TV – “multichannel is still a huge driver of value,” he commented – but it could very well be a Gordian Knot in the service’s formative months in the UK.

More widely, pay TV “ownership” in the UK remains “sticky”: our latest Mediabug data indicates that SVOD’s impact on pay TV subscriptions in the UK has been extremely limited.  Disney appears to have launched an SVOD service for a market that is racing to “cord shave” or “cord cut”, with the dynamics in the UK market stubbornly refusing to move in either direction.  This isn’t to argue that a product as internationally scalable as DisneyLife won’t succeed: each market is different, each market’s balance of free to pay TV is different, each market’s propensity to adopt SVOD is different, and of course the penetration of the typical connected devices on which DisneyLife will be made available varies from market to market.  It’s more to argue that Disney have chosen a particularly difficult market for DisneyLife to begins its journey.  And that’s without taking into account that many of the devices on which DisneyLife has been made available – mobiles, tablets, streaming devices – are ones on which Disney has traditionally had an electronic sell-through (EST) presence, via third-party services such as iTunes and Google Play.  How this all plays out will be fascinating to watch.

Disney is leveraging the strength of the favourable, but not quite unique, circumstances in which it finds itself: the ability to “package” output from across its formidable television channel and studio arms – a strong roster of original and commissioned content amidst a backdrop of the richest of rich back catalogues. And that’s not mentioning its Disney Music Group.  Very few broadcasters, indeed non-broadcasters, can boast of such a position. Turner Broadcasting and its channels, allied with its sister Warner Bros?  NBC Universal, fusing together its television channels, Universal Studios, and whatever is left of Universal Music Group post-Vivendi acquisition?  Sony, linking its Sony Pictures Entertainment and Sony Music Entertainment arms?

As 2016 fast approaches, DisneyLife has set a course that broadcasters, both in the UK and internationally, will seek – with varying degrees of success – to follow.  In many ways, its arrival into the UK market raises more questions than it provides answers.  It’s the kind of theatre that keeps us commentators coming back for more, and – you could argue, to return to where we started – could hold in store a potential plot twist or two that has historically been the stuff of Disney scriptwriters.

Merry Christmas.

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