The Video-Streaming Wars in 2019: Can Disney Catch Netflix? Custom Case Solution & Analysis

Evidence Brief

1. Financial Metrics

2. Operational Facts

• Content Volume: Netflix produced 1500 hours of original content in 2018. Disney owns a library of 500 films and 7500 television episodes. (Source: Paragraph 8, 15)
• Distribution: Netflix operates in 190 countries. Disney Plus launch strategy targets North America first, followed by Western Europe and Asia. (Source: Paragraph 6, 18)
• Technology: Disney acquired a majority stake in BAMTech for 2.6 billion dollars to power the Direct to Consumer infrastructure. (Source: Paragraph 14)
• Pricing: Disney Plus priced at 6.99 dollars monthly. Netflix standard plan priced at 12.99 dollars monthly. (Source: Paragraph 1, 19)

3. Stakeholder Positions

• Bob Iger (Disney CEO): Views the Direct to Consumer shift as the top priority of the company. Willing to sacrifice 150 million dollars in annual licensing revenue by pulling content from Netflix.
• Reed Hastings (Netflix CEO): Maintains that the focus remains on content quality and global scale rather than competing on price alone.
• Content Creators: Increasing leverage due to the bidding war between platforms, leading to 300 million dollar deals for showrunners like Ryan Murphy.

4. Information Gaps

• Specific churn rate projections for the Disney Plus service post launch.
• Detailed breakdown of international licensing revenue losses for Disney outside of the US market.
• Marketing budget allocations for the 2019 launch window.

Strategic Analysis

1. Core Strategic Question

• Can Disney successfully transition from a high margin licensing model to a capital intensive Direct to Consumer model while maintaining the stock price?
• Does the brand strength of Disney provide a sustainable advantage against the algorithmic scale and first mover status of Netflix?

2. Structural Analysis

Rivalry (High): Competitive intensity is extreme. Competitors include well capitalized tech giants like Amazon and Apple who do not rely on streaming for primary profits. Price competition is intensifying as Disney undercuts Netflix by nearly 50 percent.

Bargaining Power of Suppliers (High): Elite talent costs are escalating. The shift to streaming has ended the backend profit participation model, forcing platforms to pay higher upfront fees to secure top directors and actors.

Threat of Substitutes (Moderate): Gaming, social media, and short form video compete for the attention of the consumer. However, premium long form storytelling remains a distinct market segment.

3. Strategic Options

Option A: The Content Fortress (Aggressive Bundling). Combine Disney Plus, Hulu, and ESPN Plus into a single discounted offering. This maximizes the share of the wallet and reduces churn by appealing to all household members. Trade off: Immediate dilution of Average Revenue Per User.

Option B: The Licensing Hedge. Maintain licensing of non core assets to third parties while keeping tentpole franchises exclusive. This preserves short term cash flow. Trade off: Weakens the value proposition of the Disney platform and confuses the brand identity.

Option C: Rapid Global Expansion. Launch in all major markets within 12 months to catch the footprint of Netflix. Trade off: Massive operational strain and high marketing costs in fragmented regulatory environments.

4. Preliminary Recommendation

Disney must pursue Option A. The company cannot win on volume against Netflix. It must win on the concentration of high value intellectual property. Bundling Hulu and ESPN Plus creates a comprehensive offering that matches the breadth of Netflix while utilizing the library of Disney. The focus must be on subscriber acquisition over short term profitability to establish a defensive scale.

Implementation Roadmap

1. Critical Path

• Month 1-3: Finalize the migration of Marvel and Star Wars titles from Netflix. Execute the technical stress tests on the BAMTech platform to prevent launch day crashes.
• Month 4: Activate the marketing blitz across Disney theme parks, television networks, and retail stores. This internal promotion reduces customer acquisition costs.
• Month 6: Launch the Disney Plus, Hulu, and ESPN Plus bundle. Establish a single sign on experience to reduce friction.

2. Key Constraints

• Legacy Contracts: Existing output deals in international markets prevent a uniform global library, which complicates marketing messages.
• Technical Stability: Any failure in the streaming quality during the launch week will permanently damage the brand reputation.
• Content Pipeline: The production of original series for Disney Plus must be consistent to prevent subscribers from canceling after watching the initial hits.

3. Risk Adjusted Implementation

The strategy assumes a 5 percent churn rate. If churn exceeds 10 percent, the company must pivot to annual billing discounts to lock in users. A contingency fund of 500 million dollars should be reserved for opportunistic content acquisitions if original productions face delays.

Executive Review and BLUF

1. BLUF

Disney will surpass Netflix in domestic subscriber growth within 24 months but will struggle with lower margins for a decade. The strategy to pivot from a wholesaler to a retailer is necessary for survival. Success depends on the bundle. Netflix has a head start in technology and global reach, but Disney owns the cultural capital. The lower price point of 6.99 dollars is a predatory tactic designed to force a shakeout of smaller players. Disney is the only incumbent with the library strength to survive the transition to a fragmented streaming market.

2. Dangerous Assumption

The analysis assumes that the library of Disney has infinite replay value. There is a risk that the lack of adult oriented or diverse content on the core Disney Plus service will lead to high churn once the nostalgia factor fades for parents and children.

3. Unaddressed Risks

• Cannibalization: The decline of the traditional cable bundle may accelerate faster than the streaming service can replace the lost operating income, creating a cash flow gap.
• Debt Load: Following the Fox acquisition, the balance sheet of Disney is stretched. A recession would limit the ability to fund the multi billion dollar content spend required to stay competitive.

4. Unconsidered Alternative

The team did not consider a White Label Strategy. Disney could have remained a content arms dealer, raising licensing fees for Netflix and Amazon while avoiding the massive capital expenditures and technical risks of building a proprietary platform. This would have guaranteed high margins without the execution risk of a tech startup.

5. Verdict

APPROVED FOR LEADERSHIP REVIEW