Let’s be honest. In the wider Disney world, a billion here and there isn’t the largest sum. Yet the recent announcement from CEO Bob Chapek that they will be axing $1B from their content budget to push for quicker streaming profits seems like an unwise move all the same. Blake & Wang entertainment attorney, Brandon Blake, analyzes this divisive announcement.
The $1B Haircut
Content spend for the fiscal 2022 year and Disney+ was originally pegged at $33B, but that has been revised to $32B in their latest quarterly report. Officially handwaved as a simple adjustment due to lower than anticipated spending, it’s still worth another look.
Admittedly, Disney has pushed a lot of money towards content spend lately, coming in $7B higher than the fiscal 2021 period. The streaming spend push is likely peaking, and we can expect to see it level out soon. Yet we’ve been told explicitly that they will be ‘saving cash’ on two key areas- general entertainment, and international titles. For both areas, it’s cheaper to produce content that’s off the pricey Marvel and Star Wars brands, of course, with lower demand for A-list cast and theatrical production quality. And it will undoubtedly boost their average revenue per user, which always looks good on paper.
Is Content the Right Cut?
As an overall strategy, however, is cheaping out on content the right move in a difficult and saturated streaming landscape? Again, $1B of $32B isn’t all that much, so it’s far too early to start predicting doom and gloom. But if this indicates a general trend for the House of Mouse, they could well be betting on the wrong horse.
Disney+ already faces an uncertain future on the lofty subscriber targets it has announced. While the brand appeal for Disney has always been high, we need only look to Netflix’s recent stock demise for an example of how betting on a brand alone can quickly backfire.
Streaming simply hasn’t proved as profitable- at least not as easily- as the old Pay TV model once was. Households are carrying record numbers of streaming subscriptions, with all indications domestically being that new subscriber numbers are petering out. Even Disney itself is still relying on profits from linear networks like ESPN. As budgets tighten in the face of rising inflation and global pressures, we’re going to see that number shrink, too. International arenas remain more profitable- but international is one of the two content areas seeing a reduction.
Ultimately, what will separate the wheat from the chaff in the streaming wars is going to be the perceived value of each platform. And almost all of that is created on the back of its content. Disney has deep back catalogs to mine, an entrenched space in childhood memories, and some stellar IPs that are still delivering great results. But if viewers perceive too much of a drop in fresh content, even a brand that powerful should be wary of the increasingly competitive landscape they’re playing in.
For now, $1B is a flash in the pan, obviously chosen as an easy fix as they seek to push the infant Disney+ platform into full profitability before its original 2024 prediction. It’s far too early to tell if they will maintain this strategy once that benchmark is reached. But it does set a dangerous precedent they might want to reconsider- after all, Netflix, too, once thought its brand was enough to carry it through the streaming wars, and look what happened there.