Article is from WeChat public account: Teng Yun (ID: tenyun700) , author: Zeng Xiang (Yourseeker founder), from the title figure: Oriental IC

On one side is the Silicon Valley video media giant, and on the other is the century-old store in the content industry. Former allies stood on the same track.

About two or three years ago, many observers were keen to predict the “battle situation” that the two giants, Disney and Netflix, would burst out. At that time, although the two companies had shown a tit-for-tat meaning in their business layouts, the flames of war have not been burned. This apparent calm lasted until last year.

On April 12, 2019, Disney officially announced that Disney +, its online video streaming service, will be launched in November, and the “hundred-year-old shop” officially launched in emerging markets. Just three months after launch, Disney + has over 28 million users.

In the beginning, many analysts also expressed optimism about the two giants’ “meeting on a narrow road”, believing that the “friendly” situation would continue.

Nat Schindler, an analyst at Bank of America, wrote on Bloomberg ’s report that “Disney + is still less engaged than Netflix”, “Disney + is not a replacement for Netflix. Netflix paves the way for Disney + to shine in the spotlight.” He said, “The two are very different services.”

Netflix is ​​naturally a patron of Disney to some extent, but Disney also had a “blessing” on Netflix a few years ago.

The following image reflects the content transaction between Disney and Netflix from 2013 to 2016-Disney has distributed its most valuable content in the form of exclusive distribution (To avoid letting other families drive up the price) contributed to Netflix, which only charges a few hundred million dollars each year.

In 2017, the two announced a “breakup.” In 2019, former allies met on a narrow road. Disney dropped all movies and TV shows on Netflix, and even Netflix CEO Hastings changed his rhetoric, admitting that Disney + is Netflix’s biggest competitor.

Change, which is something that both technology companies and traditional film and television companies have realized in the last two years. They started from different ends, walked different paths, and finally met one another, robbing users of limited credit card amounts and weekend time.

Why can Disney become a century-old store?

Or in other words, how did Disney “buy out” the childhood of children around the world step by step?

Disney has believed decades ago that content is a long-term business. The picture below is the “Empire Map” set by founder Walt Disney in 1957. The core is the movie, which is surrounded by the six business groups (BG) of TV, theme park, licensed goods, comics, publishing books, and music. Each BG earns money by “creating content” and providing specific services. Each BG is also syndicated, and other BG “contents” are used as bullets to further expand revenue sources.

This century-old store also gives the world a demonstration that doing “content” is far more than just telling a good story. Besides the story, Disney defaults that it should put in place the details of establishing emotional connections, operating hardcore fans, displaying creative ideas, and fostering audience participation.

From previous history, relying on original content to start, borrow capital to continue to merge and acquire, and then create a market value of 100 billion U.S. dollars, the entertainment empire Disney has roughly experienced three stages of content-driven, channel-driven, and content-driven:

The first phase is content-driven. During 1923, during this period, Disney created classic children’s cartoon characters such as Mickey Mouse, Donald Duck, Snow White, etc., and built theme parks around the world.

The second stage is channel driven. Since 1984, Disney has entered a high-speed development for two decades. In 1996 it acquired ABC and ESPN Sports Channel for $ 19 billion, a highlight node. During this period, its revenue increased from US $ 1.6 billion to US $ 30 billion, its profit increased from US $ 100 million to US $ 4.5 billion, and its stock price nearly doubled.

In the third stage, the content is up. Since 2005, Robert Iger has been promoted to president. Since 2006, he has led 10 cumulative US $ 10 billion mergers and acquisitions in 6 years. He has bought Pixar, Marvel, Lucasfilm, expanded the original role system, extended the IP image to all ages, and helped Disney break A ceiling for children and women.

Hundred years, three changes. It is not difficult to see that Disney has shown a sense of change in different historical circumstances. In this decade, the century-old store may be aware of the threat from Silicon Valley, and the curtain of the fourth stage may quietly open.

“Patience” transformation

The representative event of this change is: Use a lot of funds to buy 21st Century Fox, and push the Disney + service to enlarge the DTC platform. DTC is Direct To Consumer (Directly to the user) . By collecting and integrating content, users can enjoy all content here at Disney, skipping platforms such as Netflix.

Disney is determined to implement this strategy.

First of all, the 21st Century Fox, which is not very profitable for sky-high acquisitions, is not “cost-effective.” What Disney likes is that in addition to harvesting a batch of IP, it can also obtain a controlling stake in Hulu, one of the important channels, to better connect with streaming users and tap more growth opportunities.

Comparison of the financial reports of the two companies, 21st Century Fox and Disney, and comparing similar businesses, it is not difficult to find that 21st Century Fox has limited profitability.

Second, High profit margins have been the main driving force for Disney’s stock price increase, and this acquisition not only means giving up short-term profits, but also requires it to integrate a similar type of company with consistently poor profit margins. Disney must respond to market concerns.

Disney thinks it’s worth it. The facts have also proved that in order to keep its own position, in addition to directly facing users, even if it needs to invest a lot of energy and money to produce content dedicated to its own platform, Disney is not hesitating. The CEO said on the earnings call:

Apart from Star Wars (Star Wars) , there are many more content available for Disney platform exclusives, such as Marvel ’s Many IPs. Expanding the form and category of similar content is a good solution to deepen the moat and effectively fight back on other platforms.

Directly facing users, integrating and packaging movie-proven movie IP into TV series, and channeling exclusive content to its own platform. This is the idea of ​​Disney’s customer acquisition that prefers early losses and resolute implementation.

When will the profits now abandoned be made back? To appeaseShareholders ’hearts, Disney officials have given predictions: continued investment in 2020, spending began to decrease around 2022, and profit is expected to be realized in 2024.

After gradually letting go of the “persistence” of profit margins, Disney began to focus on new “indicators” of growth. This makes it look like an internet company.

In the past, Disney’s acquisition of Pixar, Marvel, and Lucas proved to be successful, all of which have re-energized the growth potential without sacrificing profitability; now it is conscious to accumulate its own DTC platform In the story of a growth-oriented Internet company-it is increasingly frequently mentioned that the number of subscribers is growing.

According to Sensor Tower’s statistics earlier this year, Disney + received 28 million installs in the App Store and Google Play in five countries: the United States, Canada, Australia, New Zealand and the Netherlands. There were 4 million users who became paid users after 7 days of free experience, contributing a total of $ 55 million in revenue. In addition, it should be the best performing video streaming service on mobile since January 2012.

It looks like a good start. As for subsequent retention, other regional additions, operating costs, and to what extent it can meet Disney’s expectations, it is worth continuing to track.

So far, this century-old store that started to tell “new stories” such as user growth, user retention, and conversion rate,Can not help but think of Netflix. They seem to be getting more and more like?

Netflix’s “Hidden Worries”

Netflix faces very different concerns than Disney.

This is a company that is over-mentioned but not fully resolved. Rising in the wind of the DVD, using the “Lewinsky Incident” to build momentum, because streaming media has established a foothold. Although it has more than 20 years of history, today it still accurately grasps the content preferences and interests of most people (especially young people) pulse. Such legends have spread widely.

Everyone has found out that very few companies, like Netflix, have such a strong correlation between market value changes and a key statistic, the number of subscribers.

For the past four years, Netflix’s number of subscribers every quarter has been firmly affecting the hearts of countless shareholders. Because by this number, all market sentiment and future expectations are sensitive and timely feedback on the stock price. So that while Netflix launches a blockbuster episode, they can’t help but increase their positions while making a plot for the plot.

It’s no wonder that when Netflix founder Hastings mentioned his company, he didn’t say how good the content was and how powerful the data was. His most interesting sentence was:

“Basically, what we are really good at is the membership business, not TV / video. Once you pay for a subscription, we only focus on one, your ‘happiness’.”

What’s the difference between “subscription” and “member”? There is an explanation: “Subscription” is user behavior, and “member” is a serviceattitude. What is a good service attitude? Do three things:

Make them happy while enjoying the service;

Make them feel secure when handing over privacy;

Let them have a sense of belonging to your service.

The rising number of subscribers has made Netflix’s market value soar, making it one of the most valuable companies in the world. However, Netflix’s model of relying heavily on subscriber growth has also suffered. For example, in the second quarter of 2019 financial report, the growth of global paid subscribers is too outrageous. (Overvalued by 2 million) , coupled with rising prices leading to the first decline in the number of paid members in the United States, causing investor concerns, its single-day stock price plummeted 11%. For Disney, this is unimaginable.

In addition, Netflix has always had two “hidden worries”: One, the content cost is too high, and continued to rely on debt financing to support high content investment. Tomorrow’s money will please today’s members. Once stopped, members will rush out and there is a suspicion of drinking and quenching thirst; Second, continue to overseas (Referring to “overseas” relative to the United States) Expansion, seeking high growth in membership and income. But how many “quality members” can pay high unit prices? To what extent can content that meets the tastes of American members be reused?

If marginal revenue fails to cover the cost of additional marginal content, Netflix may encounter Waterloo.

Of course, these are only logical predictions. When will it really come to an end? This requires deeper discussion. All in all, these worries are “another kind of sorrow” that Disney, which has held a lot of IP and has been operating for many years, cannot understand.

Who decides the ultimate winner?

It is not difficult to see from the above description, Netflix’s road is destined to continue to bet on good IP, good content, huge investment, and still have the risk of marginal cost exceeding marginal profit. And when Disney decided to stop being a pure content provider and become a platform and service provider,At one time, only Internet companies had indicators, and it had to be “backed up.”

But so far we still ignore a reality: The video streaming business is certainly the future, but at least it has different meanings for the two companies now. This is doomed to different motivations.

Netflix’s goal and business model are clear: It wants to be the largest source of video content production in the world, and its core goals are user scale and user engagement. So how do you define its success? It depends on how long and how much penetration it can gradually replace the original “TV” status in the Internet world.

At least for the foreseeable future, Netflix should be a pure, content-driven, ad-free video service. It only wants to please users, and it only sells videos. This pursuit also almost determines the path that Netflix can choose. Look at the costs it has spent on content production and acquisitions in recent years:

In the figure above, green is the content amortization expense, and gray is the actual cash expenditure. It can be seen that Netflix actually burned $ 8.9 billion in fiscal 2017, and according to forecasts, its content expenditure in fiscal 2020 will reach $ 17.8 billion, almost doubling the pace in three years.

Compared horizontally, Amazon video streaming content spends 4 billion to 6 billion US dollars, Hulu 3 billion, HBO 2 billion, and Apple is currently about 1 billion. As for the ability to make money, of all the major competitors, only Amazon is worse than it. But Amazon can afford it, Netflix can’t.

In contrast, a type of giant represented by Disney, whether it is Amazon or Apple, their motivation to get involved in video streaming is completely different from Netflix. Take Disney as an example, the following figure is taken from its financial report:

Disney’s four major businesses have contributed major revenue to it, including: Media Networks (Parks, Experiences and Products) , studio entertainment products (Studio Entertainment) , DTC platform and international business (Direct-to-Consumer & International) .

As of the third quarter of 2019, the revenue of the first three businesses increased by 22%, 8%, and 52% year-on-year respectively, and the fourth one was a bright 100% increase. Although Disney has set this new growth explosion point, we can still find that even with the fastest growth rate of this business, it is very difficult for paying members to become a major source of profit for Disney in terms of base numbers. For Apple and Amazon, this truth is even more obvious. Video streaming is just a way for them to better serve their users.

It’s not difficult to understand that companies with different endowments have entered the same track for various reasons. Some of them have mastered channels, some of them control hardware entrances, and they hold a lot of industry resources. But these are still industry perspectives.

Who will win? The decision is up to the user. For users, “what can be seen on the platform” really determines whether “I” stays.

In a recent article published by The Verge on the “war” of the video streaming industry, the author mentioned that Households must exercise the right to choose. The key question is: Is it a choice of fresh content that everyone is talking about, or is it a classic that is enduring and smashing into the sand? At that moment, perhaps the real beginning of the war. Those who can meet both needs will win.

Mark McCaffrey, senior consultant at PwC and head of the TMT department, believes that “generally, attractive content brings users to a platform, but what keeps people from leaving is content Richness and collection. “

“The platform should pursue such a stage. The user stays here not only because there is content that attracts him, but also quite deep content that he can keep watching. Consumers have no loyalty , Their cost of leaving is almost zero. “ Mark McCaffrey said.

But will it be the key issue that determines whether users stay? If not, what are the key issues?


The article is from WeChat public account: Tengyun (ID: tenyun700) author: Zeng Xiang (Yourseeker founder)