Millions of Americans are willing to part with $7.99 per month to enjoy Netflix (NFLX 9.71%) offerings, but have you ever thought about how much money you pay Disney (DIS +2.30%) for content in any given year? How much subscription and commercial revenue it makes from ESPN, ABC, and Disney Channel or how much you spend on Marvel, Pixar, or Lucasfilm movies? The numbers are scary once you add them up.
ESPN alone commands about $6 per month from every paying customer, the most of any cable network. There's ad revenue on top of that and let's not forget all of the smaller networks we're all paying for without really knowing it. Sprinkle in a viewing of Iron Man 3 and maybe Monsters University and you're talking about some serious loot going to Disney every year.
In fact, if you divide the revenue Disney's media networks and studio entertainment divisions generated over the past twelve months ($26.17 billion) by the population of the United States (313.9 million) you get monthly revenue from every man, woman, and child of $6.95. Obviously some of Disney's revenue is overseas but this is meant to put into perspective just how much content Disney distributes to the average person and how much we pay for it.
The next frontier
So, where does Netflix come into the picture? When you look at the revenue per person of $6.95 and compare that to a Netflix subscription of $7.99 per month you can see that there's no way Netflix could buy enough of Disney's content to be its main distribution channel. It may get a piece of the pie, but it'll never be a big portion of Disney's distribution network.
But I do think Netflix has shown that consumers are willing to pay for attractive streaming content, especially when there's original content included. So, what if Disney decided to sell subscriptions to its own apps; apps that are already popping up on devices like Apple TV and Roku? How much could it charge and how attractive would it be versus cable or Netflix?
Below I've laid out some of the potential tiers Disney could sell and the shows or movies that would be included in the tier. Remember that Disney owns lots of older content so like Netflix the coffers would be full of older TV shows and movies, not just new ones.
|
Channel |
Assets/Shows |
Hypothetical |
|---|---|---|
|
ESPN |
ESPN, ESPN2, ESPNU, Monday Night Football, SportsCenter |
$25 |
|
ABC |
Modern Family, Dancing with the Stars, Grey's Anatomy, Jimmy Kimmel, ABC Family |
$10 |
|
Disney Channel |
Jessie, Austin & Ally, The Mickey Mouse Club, Hannah Montana |
$10 |
|
Marvel/Lucasfilm |
Iron Man, The Avengers, Agents of Shield, Thor, X-Men, Fantastic Four, Spider-Man, Star Wars, Indiana Jones* |
$10 |
|
Pixar/Disney Studios |
Mickey Mouse, Beauty and the Beast, Lion King, Toy Story, Monsters, Cars, The Incredibles, Finding Nemo |
$10 |
|
All Disney Content |
All of the above |
$50 |
Note: Disney doesn't own the rights to all Marvel films so licensing deals would be needed to show all Marvel films.
The question is, what could Disney charge a customer who may be willing to cut cable for streaming only?
Assuming ESPN is the most valuable asset and consumers are already paying $6 for the channel, plus cable company margin, I don't think $25 to go straight to Disney is out of line. After all, ESPN is the biggest hurdle to cord cutting for most subscribers. The other subscriptions may be around $10 with a package of everything costing $50.
I pay around $100 per month for television but a vast majority of what I watch is from Disney (ie. ESPN). If I could have all of the company's assets on demand for $50 a month and pay for other content I want I would consider it a viable alternative.
Could Disney topple cable and Netflix?
Is this the model Disney or any other content owner is moving toward? Only time will tell but with Disney adding apps to Apple TV and Roku I think it's only a matter of time. Content owners like Fox and HBO are improving their own apps and the NFL, NBA, NHL, and MLB all offer some kind of streaming subscription to watch live sports. With live sports and ESPN I think millions of people would be willing to cut cable.
The challenge is just as big for Netflix, who primarily licenses content from content owners like Disney. HBO has shown it can go direct to consumers with its own app and Disney is starting to do the same thing, which would pose a huge challenge to Netflix's model. There's a reason Netflix is pushing into its own original content. It knows there's little barrier to other content owners developing their own apps and going straight to consumers.
Disney can already command a huge chunk of our entertainment dollars and if it decides to go direct to consumers would you pick Disney or Netflix? I know which side I'm betting on.
