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Why Disney made a huge mistake by selling its content to Netflix

As Netflix grows and grows, Disney is poised to be the “biggest loser,” BTIG’s Rich Greenfield says.

Left: Getty Images; Right: Joan Cros Garcia / Corbis / Getty Images

In the years before “House of Cards,” when Netflix was merely streaming movies and TV shows created by other companies, Disney and a lot of its peers did what seemed right at the time — they let Reed Hastings write them a big check.

On the latest episode of Recode Media with Peter Kafka, BTIG analyst Rich Greenfield said Disney CEO Bob Iger probably regrets that deal. By licensing video content from the big players, Netflix learned how to make stuff people wanted to watch — and then it started to make its own.

“Everyone starts in the media food chain or the entertainment ecosystem with other people’s old stuff,” Greenfield said. He pointed out that AMC — now the home of “Better Call Saul” and “The Walking Dead” — used to only carry old movies. And FX — the home of “Fargo” and “The Americans” — used to air reruns of “Ally McBeal” and “The X-Files.”

“Then you build up to bigger and bigger content that you own and control,” Greenfield added. “ESPN still is a buyer of other people’s content. What is really interesting about Netflix, like HBO has done over the last 15 years, is that they actually own and control that content, and increasingly, own and control it globally.”

A vocal critic of Disney and an advocate of tech companies like Netflix, Greenfield said as consumer viewing habits change, the traditional TV bundle is irreparably doomed.

“Netflix’s success, Amazon’s success, Hulu’s success, come at the expense of the legacy multichannel bundle,” he said. “The greater the multichannel bundle comes under pressure, who’s the biggest loser? Who has the most tied to that bundle? If that bundle breaks, Disney loses more than anyone else.”

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So, what’s the solution? One might think that Disney could leverage its popular library to compete directly with Netflix, but Greenfield isn’t so sure. This digital “direct to consumer” approach is an area where The Mouse doesn’t have as much experience.

“Imagine Disney, in 2020, says, ‘We’re not renewing our deal with Netflix. We’re going to launch Disney content directly to consumers,’” he said. “You’re starting with no data on your consumer, no relationships. All your library’s still on Netflix for years to come. You’re going to be losing tons of money.”

For more than a decade, HBO has had to produce content of a certain quality level to not lose subscribers, Greenfield explained, and canceling Netflix is even easier than that. And that’s another form of pressure Disney hasn’t had to deal with in the past, given that canceling one’s cable subscription is a laborious process and is currently handled by Comcast and Time Warner, not the channels.

“That whole world of marketing to you — customer acquisition, retention, dealing with churn — media companies have never had that direct-to-consumer skill set,” Greenfield said. “And it’s really difficult. So I think buying their way in is critical. The only way they’re going to succeed is making some bold moves to get into that subscription, ongoing relationship.”

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This article originally appeared on Recode.net.