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Who really wins? The Disney and Netflix divorce

By Rupert Burnham | February 4, 2019

So Netflix and Disney are divorcing. Nothing new there, the news first made the rounds over a year ago when Disney announced its intentions for its new streaming venture. But with the November announcement that it’s to be called Disney+ and scheduled for launch in the US in late 2019, things have started to get real.

 

But what does this mean for rival streaming services, notably the Netflix — the clear market leader. Well, for those in the know, this is serious, and the fight and competition between the two heavyweight media titans could be the great media battle of our times.

 

Divorce is a messy affair and this one’s no different, but it’s worth backtracking a little to review the relationship between the two so that we can fully understand the causes of the split, the ramifications, and what it means for streamed media.

 

As with all relationships, there was a honeymoon period, and the two courted, heavily. Netflix licensed all sorts of content from Disney including some notable characters from the Marvel universe: Daredevil and the rest of the Defenders gang to name a few. Daredevil debuted on Netflix in April, 2015, and it marked a new and bold step forward for Marvel's on-screen universe. The show obliquely acknowledged events from the Marvel universe movies but quickly went off in its own tone and direction to lay the groundwork for a new pantheon of superheroes born of the street that included Jessica Jones, Luke Cage, Iron Fist and the Punisher.

 

And for a while all was good, very good in fact. Netflix and Marvel used Daredevil to showcase some of the unique advantages of scripted, live-action series television as yet another tool in Marvel's multi-platform world-building project. The 13 hour long episode seasons allowed for long, slow-burning story arcs featuring large casts and multiple subplots to come vividly to life. Claustrophobic tension exploded into choreographed violence (and it was violent) in pointed contrast to the usual more sanitised, grand, overarching CGI set pieces beloved of nearly all superhero films. The series set a template that was then followed by the other series that featured the cast of the Defenders.

 

Produced, packaged and branded by Netflix, Daredevil was the type of bold series that has helped Netflix to dominate the streaming landscape. But this growth came at the expense of others. As Netflix grew, Disney must’ve been thinking that they’re ceding territory and for a moment earlier in the year, their position as the most valuable media company in the world to a rival at the expense of their own intellectual property.

 

So, Disney decides to go it alone with its ambitions to build its own over-the-top streaming service, Disney+, placing it in direct competition with Netflix, CBS, Warner ATT, Hulu (in which it now holds a 30% stake), Amazon and potentially Apple or other players. They then announce and set dates to take back key pieces of content. For those that remember the NBC Universal/Apple iTunes fiasco of 2007, Disney’s decision may provoke a certain sense of deja vu.

 

Given Disney’s move, there was no way Netflix was going to carry on plowing investment into something it only licenced — why would it want to carry what is essentially an advert for not just a rival streaming service? In retaliation, Netflix cancels highly rated shows featuring characters owned by Disney like Daredevil, as well as not so highly rated ones (Iron Fist and Luke Cage). It’s worth remembering that Netflix only licenced the characters, meaning that while they paid handsomely for the production costs, approximately $3 million plus per episode, they had zero ownership stake in the IP. The kind of relationship that works well until your partner announces they’re leaving and they don’t want their valuable characters fighting crime on your service.

 

So while it may seem that Netflix has turned a blind eye to viewer demand by canceling the series — the end of Daredevil’s current universe is not the result of a fatal battle with Kingpin, but the positioning of forces in the divorce of the streamers, and battle lines being drawn.

 

With Disney leaving, there’s no way Netflix was going to carry on plowing investment into something it only licenced — and now essentially an advert for a rival streaming service. There’s also the other theory that the cost-benefit balance for the expensive shows — based on deals set up early in Netflix’s content ascension — are simply no longer worth it for the streaming service in its now advanced position in the media landscape.

 

But whether these characters are as loved as presumed, or not, for Netflix, it doesn’t really matter and they won’t miss Disney, at all. Sure, it’ll be painful, but they’ve been in the streaming game for longer and have acquired vast amounts of data effectively to create its own new content; House of Cards, Orange is the New Black, and Stranger Things to name but a few series. As we stated in our previous post, if Netflix is to further expand and reduce expenditure on acquisitions at the same time, then it needs to look more to inhouse production — avoiding studio fees while simultaneously owning the IP of anything it produces for itself. And as far as Netflix is concerned and as their Chief Product Officer, Greg Peters has stated “Great stories can come from anywhere and they can travel everywhere.” La Casa del Papel is a glowing example of this philosophy.

 

However, with all divorces comes collateral damage, sometimes unintended and unforeseen. An increase in the number of streaming services — and it’s suddenly looking more crowded — means that customers require multiple subscriptions to access all the content they want. In reality this means that the price point for access to content across multiple services is no longer palatable. A very real consequence of this is that users become increasingly likely to turn to piracy to supplement their content intake.

 

Not so sure? Back to the NBC Universal/Apple iTunes fiasco of 2007. Now for those that remember, it didn’t end well. Back then, NBC refused to renew the contract to sell its show on iTunes, their reasoning being threefold. Firstly, they felt that with the strength of their roster meant that they could dictate terms. Secondly, this was when Apple was launching the iPod touch, the timing of which NBC believed would further strengthen their hand. Thirdly, NBC further reasoned that users were not dependent on iTunes, the dominant service at the time, and that they would happily download for a fee direct from NBC direct, their own portal.

 

The outcome was disastrous for all concerned, users after NBC content were driven to piracy in their droves. When the content was on iTunes it was easily available to access through a well designed interface. When this easy ability to access the content was suddenly removed, it became far easier, and cheaper to illegally download and stream the content than watch it anywhere else. But the consequences were worse than that, far worse. What this inadvertently caused was a marked rise in the piracy of content across the streaming board — Pandora’s box was opened.

 

The industry has moved on considerably since the bad old piracy days of over a decade ago, but are we about to see history repeat itself? Will the launch of Disney+ and the pulling of Marvel content from Netflix see a rise in piracy levels? If history is anything to go by, then it certainly seems more than possible.

 

Piracy aside, in terms of the battle being played out between Disney and Netflix in the streaming wars, who will win? It was recently announced that Marvel Studios content is being positioned as one of Mouse House’s key pieces in its formidable armada, along with a raft of new content from the Starwars universe. The smart money is on Netflix winning the battle though, having arguably the dominant position and a more coherent content strategy than Disney, they’ll just come out of it very bruised and battered. However “to the victor the spoils” as they say, and in this fight, the spoils are huge.

 

Tags: daredevil disney marvel netflix starwars svod tv