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Fox, Warner, and Universal Join Disney's Digital Push Against Netflix

By Leo Sun - Oct 26, 2017 at 8:36AM

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The four big studios team up against Netflix, but history suggests that they’re fighting a losing battle.

Disney (DIS -0.03%) could soon add content from 21st Century Fox (FOX), Time Warner (TWX), and Comcast's (CMCSA 1.10%) Universal to its Movies Anywhere service, which stores all of a user's digital film purchases on a single platform that can be accessed across multiple devices.

The House of Mouse has been courting studios for the platform since last year, and the addition of Fox, Warner, and Universal's digital libraries could significantly bolster its mainstream appeal.

Rows of tiny movie seats placed on a laptop keyboard.

Image source: Getty Images.

Why does Disney need Movies Anywhere?

Cord-cutting hurts media companies like Disney in two major ways. First, obviously, people cut the cable cord and switch to internet-delivered, over-the-top (OTT) content from providers like Netflix (NFLX 0.84%). That leads to reduced revenue from Disney's television networks.

Second, when people stream movies, they buy fewer DVDs and Blu-ray discs, which were once a reliable stream of secondary revenue for studios after a film's theatrical run. DVD sales fell over 10% annually during the first half of 2017, according to Digital Entertainment Group. Yet digital sales of movies rose more than 8% during the same period.

Disney recently decided to pull its movies from Netflix by 2019, and began pushing Movies Anywhere as a universal "digital locker" for digital movie purchases. The service was originally launched in 2014 as "Disney's Movies Anywhere" against a rival platform called Ultraviolet.

What does Movies Anywhere do?

Today, Movies Anywhere lets you organize purchases from Apple's iTunes, Amazon Video, Alphabet's Google Play, and Wal-Mart's Vudu -- as long as the movies are from partnered studios.

An ad for Movies Anywhere showing electronic devices with movie options on their screens.

Movies Anywhere on Android. Image source: Google Play.

With Fox, Warner, and Universal now on board, the only major holdouts are Viacom's (NASDAQ: VIA) (NASDAQ: VIAB) Paramount and Lions Gate Entertainment. However, Disney's Movies Anywhere offers over 7,300 movies.

Movies Anywhere is a smart way to unify the a la carte digital film market, but it's not really a direct way to counter Netflix, which streams films and shows instead of selling them. To actually challenge Netflix, Disney will launch two new streaming platforms, one for its core Disney properties (first-party content, Star Wars, and Marvel franchises), and another for ESPN.

Together, these three platforms form the crux of Disney's digital push against Netflix -- but history suggests that Disney and other studios could be on the losing side of this battle.

Will history simply repeat itself?

Back in 1983, HBO (a subsidiary of Time Warner) hit 12 million subscribers as more people paid to watch movies at home. Alarmed by HBO's rapid growth and leverage over content, three major studios -- Paramount, Warner, and MCA -- partnered with Viacom to launch two competing pay TV services, Showtime and The Movie Channel.

The studios believed that they could either force HBO to pay higher content licensing fees or make their own content exclusive to their pay TV channels. However, HBO continued growing and eventually left Showtime and The Movie Channel in the dust. HBO finished last year with 134 million subscribers worldwide, and its exclusive shows like Game of Thrones and Westworld continue to crush the competition.

Following HBO's game plan

Netflix is clearly following HBO's growth strategy by creating a subscription-based platform for premium, ad-free content and producing exclusive content for its viewers. The main difference is the technology. Whereas HBO rose to prominence on the growth of cable TV, Netflix entered the streaming video market before most media companies considered it an imminent threat.

But Netflix now has advantages that HBO didn't have in the 1980s -- its content can be played on demand on almost any connected device, it can use AI and analytics to gauge viewers' preferences, and it's securing a lot of Hollywood talent with its promises of creative freedom. Therefore, Disney and its allies will probably fail to stop Netflix, in the same way studios failed to stop HBO over three decades ago.

 

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Stocks Mentioned

Netflix, Inc. Stock Quote
Netflix, Inc.
NFLX
$176.34 (0.84%) $1.47
The Walt Disney Company Stock Quote
The Walt Disney Company
DIS
$94.37 (-0.03%) $0.03
Twenty-First Century Fox, Inc. Stock Quote
Twenty-First Century Fox, Inc.
FOX
Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$39.67 (1.10%) $0.43
Time Warner Inc. Stock Quote
Time Warner Inc.
TWX

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