Business Wars: Netflix and the Fall of Television | The Mouse Strikes Back | Episode 2
Overview
In this riveting episode of Business Wars by Wondery, host David Brown delves into Disney's ambitious yet tumultuous journey to challenge Netflix in the streaming landscape. Titled "The Mouse Strikes Back," the episode chronicles Disney's strategic maneuvers, leadership battles, and the high-stakes race to dominate the streaming wars. From the problematic launch of Disney+ to the eventual reinstatement of Bob Iger as CEO, the story highlights the complexities and challenges legacy studios face in the rapidly evolving digital entertainment industry.
1. Disney's Bold Entry into Streaming
Launch Day Chaos
November 12, 2019, Burbank, California: Disney's Direct to Consumer Services Chairman, Kevin Mayer, confronts his IT department amidst the disastrous launch of Disney+. Despite Disney's previous investments in streaming platforms like Hulu and ESPN+, this launch was unprecedented in scale, featuring a vast library of 500 feature films, 7,500 TV episodes, and high-budget originals. However, technical glitches marred the debut.
- Kevin Mayer (00:00): “What the hell is going on?”
- Mayer (00:01): “My Disney plus experience is underwhelming. Black screens. You know where that came from? Twitter.”
Despite overinvesting $3 billion and a massive marketing push, Disney+ faced immediate technical setbacks, threatening its initial subscriber growth crucial for long-term success.
2. Battling Netflix's Dominance
Strategic Positioning
Disney recognized Netflix's early dominance in streaming, having launched in 2007 and expanded into original content by 2013. By the mid-2010s, Netflix was a formidable competitor, securing deals with major producers and leveraging studio content to boost its subscriber base.
- David Brown (05:14): “By the time Disney got into the streaming game with Disney plus, Netflix had more than a decade's worth of a head start.”
To counteract this, Disney aimed to leverage its iconic brands—Marvel, Star Wars, National Geographic—and invest heavily in high-profile content like The Mandalorian, which became a cultural phenomenon and significantly boosted Disney+ subscriptions.
- Narration (05:14): “Disney reportedly spends $15 million per episode, an order of magnitude higher than the first season of HBO's Game of Thrones would cost about $6 million per episode.”
3. Leadership Transition and COVID-19 Impact
CEO Change and Pandemic Challenges
In February 2020, Bob Iger announced his retirement after nearly 15 years as Disney's CEO, appointing Bob Chapek from the theme park division as his successor. Shortly after, the COVID-19 pandemic struck, forcing Disney to shut down theme parks, cruise ships, and halt movie productions, putting enormous pressure on Disney+ to deliver fresh content amidst halted production pipelines.
- Narration (05:14): “The pandemic has shut down production. And Disney's no longer the only legacy studio with a streaming service either.”
Despite reaching the ambitious target of 60 million subscribers by August 2020, maintaining growth became challenging without continuous new content.
4. Internal Struggles and Strategic Shifts
Content Bottlenecks and Reorganization Efforts
Disney's corporate structure posed significant hurdles. Each studio (Marvel, Pixar, Disney Animation, Fox) retained autonomy over content distribution, leading to delays in releasing major films directly to Disney+. Chapek recognized the need for centralized control to prioritize streaming but faced resistance from studio heads who were reluctant to shift their distribution strategies.
- David Brown (13:15): “Look, I really need you to send your best material straight to Disney. Plus, skip the theatrical release, okay?”
- Jennifer Lee (13:22): “Oh, okay. We're launching right in.”
Chapek's frustration culminated in his decision to create the Disney Media and Entertainment Division, aiming to streamline content distribution towards streaming. However, this move led to conflicts, including a lawsuit from Scarlett Johansson over the simultaneous release of Black Widow in theaters and on Disney+, violating her contract terms.
- Narration (15:31): “But Chapek is undeterred. He signs off on Disney lawyers taking an aggressive response...”
5. Financial Missteps and Board Overreaction
Earnings Shortfalls and CEO Ouster
Disney's aggressive investment in content led to soaring costs, culminating in a $1.5 billion loss in the third quarter of 2022. Despite subscriber growth, the lack of profitability alarmed the board, especially as Disney's stock plummeted following disappointing earnings reports.
- Christine McCarthy (27:12): “I need a cup of coffee. I'll see you back in there.”
Chapek's inability to foresee the financial strain and his overconfidence in growth strategies led to his termination. Bob Iger was reinstated as CEO in November 2022, signaling a strategic pivot back to tried-and-true methods.
6. Reinstatement of Bob Iger and New Ventures
Rebuilding and New Partnerships
Under Iger's leadership, Disney dismantled Chapek's centralized division, cutting content spending, laying off workers, and reopening previously halted projects. Iger sought strategic partnerships, notably proposing a collaboration with Fox and Warner Bros. Discovery to launch a joint sports streaming service, Venue. Although initially blocked by legal challenges from competitors like FuboTV, Disney pivoted to merge Hulu + Live TV with FuboTV, securing a 70% stake in the new venture and solidifying its position in the sports streaming market.
- Narration (36:56): “Disney will own 70% of Fubo and will combine Hulu plus live TV's 4.6 million subscribers with Fubo's 1.6 million.”
This strategic realignment culminated in Disney's streaming services turning profitable by early 2025, marking a significant turnaround after years of struggle.
7. Lessons Learned and Concluding Insights
Key Takeaways
David Brown encapsulates the saga with several key lessons:
- Technical Readiness: Ensuring flawless technology is crucial for large-scale platform launches.
- Contractual Vigilance: Managing contracts meticulously is vital to prevent legal and financial repercussions.
- Strategic Investment: High budgets must be paired with intelligent strategy to outmaneuver competitors.
- Leadership Communication: Transparent and proactive communication within leadership can prevent strategic misalignments.
- Narration (41:24): “Think about it. When Disney got into the streaming game, many outsiders thought it was a bit of a no brainer. Now, after an ugly slog, Disney's finally profitable in streaming. But it only took six years, two CEOs and one Baby Yoda.”
The episode concludes by highlighting that even iconic brands like Disney must navigate complex challenges and adapt their strategies to remain competitive in the ever-evolving streaming landscape.
Looking Ahead
The story of Disney's battle against Netflix is just one chapter in the ongoing streaming wars. In the next episode, Business Wars explores how Warner Bros. forges unexpected alliances to bolster its streaming ambitions, risking the legacy of its storied brand, HBO.
Note: This summary is based on dramatized recreations of events and is supported by historical research. For more detailed insights, refer to "The Palace Coup at the Magic Kingdom" by James B. Stewart and Brooks Barnes, published in the New York Times Magazine.