We’ve seen this coming for a while, but it’s still a big deal: Disney says it’s going to launch its own video streaming service, so it’s going to stop selling its stuff to Netflix.
The announcement links up two parallel and connected storylines: For several years, Hollywood studios and their owners have been making noises about keeping their stuff away from Netflix, which they used to view as a nice-to-have buyer for their old stuff, and now view as an incredibly powerful competitor.
And at the same time, those same media companies have been talking about wanting to launch their own internet services, which would sell content directly to consumers — just like Netflix.
Disney made it quite clear that it was headed this way last year when it spent $1 billion for a third of BAMTech, the streaming service built by Major League Baseball. At the time, Disney said it would use the service to build out an ESPN-branded streaming service, but it was clearly interested in using the same tech for a Disney version.
Now it says it’s really doing it. Disney is going to spend another $1.58 billion to buy another 42 percent of BAMTech, and will launch that ESPN service in 2018 (more on that later). It says the Disney-branded service will launch in 2019.
For Netflix, that means it won’t be able to renew a deal that gives it access to Disney movies, which ends in late 2019. The existing deal gives Netflix the ability to stream all of the Disney movies that appear in theaters through 2018, including big tentpoles like “Black Panther,” a new Avengers movie, and that interesting/troubled Han Solo movie.
(Update: Had to check on this, because I was typing while CEO Bob Iger was talking. But here’s an important bit of non-specificity: All of Disney’s movies will eventually come off Netflix, but that doesn’t necessarily mean they’ll end up on the Disney streaming service. Iger says the service will definitely have Disney and Pixar films, but he’s not sure it will carry Disney’s Marvel and Star Wars movies. Those could end up somewhere else — maybe something owned by Disney, maybe not.
Here’s the relevant transcript excerpt:
What we're saying specifically is that the Disney branded [service will] have the Disney and Pixar films. The disposition of the Marvel and Lucas or Star Wars films we have not determined yet. We've had a discussion internally about how best to bring them to the consumer. It's possible we'll continue to license them to a pay service like Netflix, but it's premature to say exactly what we will do. We certainly have that opportunity. There's been talk about launching a proprietary Marvel service and Star Wars service, but we're mindful of the volume of product that would go into those services, and we want to be careful about that.
We've also thought about including Marvel and Star Wars as part of the Disney branded service, but there we want to be mindful of the Star Wars fan and the Marvel fan and to what extent those fans are either overlapped with Disney fans or they're completely basically separate incremental to Disney fans. So it's all in discussion.)
A Netflix rep says Disney’s decision doesn’t affect other deals that it has with Netflix, including one that brought a series of Marvel superhero originals like “Daredevil” to Netflix.
The move can’t be a shock to Netflix, which has been clear that it plans on spending billions on content that it will own itself, including big-budget movies of its own.
It also adds additional context to Netflix’s announcement — a little more than 24 hours ago — that it had made its first-ever acquisition by picking up comics publisher Millarworld. That is — it was buying talent that would help it make its own blockbusters.
Perhaps that’s why Netflix stock is only down 3 percent in after-hours trading today.
Meanwhile, about the ESPN service Disney says it is going to launch: Iger says it will be available in “early 2018” and will include more than 10,000 hours of sports.
This won’t be the direct-to-consumer version of the “real” ESPN channel that people have been speculating about for years. Instead, it’s going to have lots of ... other stuff that doesn’t run on ESPN.
Iger won’t spell out what that means or what the service will cost, except that it will include some Major League Baseball and National Hockey League games; ESPN will also sell add-on packages that specialize in particular sports. All of it will be available from ESPN’s existing apps (which are already powered by BAMTech).
ESPN originally said this service was coming in 2016, and then pushed the launch date back to 2017. Now Iger says it’s coming next year, for sure, and that it’s going to be “more robust than the one we had anticipated.”
That lifts expectations for a service that most observers thought would be relatively underwhelming — interesting for people who liked niche sports that aren’t on regular TV, and not very interesting to the rest of us. So we’ll see.
(Side note: Disney’s affection for BAMTech continues to baffle many people in the sports and streaming world, who argue that the company’s streaming TV tech isn’t particularly interesting and that most of the revenue the company generates is a pass-through to rights owners like pro baseball. But Disney apparently thinks that it’s better to buy BAMTech now than to build its own tech over time.)
If you pull all the way back, you’ll see Disney trying to do what every big media company has been trying to do for many years: Trying to make money from technology and the internet by selling stuff it already makes and owns, while trying to avoid cannibalizing its existing business — in this case, selling its stuff to traditional pay TV distributors.
Eventually, Iger argues, the money that Disney can make by selling its own stuff will eclipse the money it makes through its existing business model. But it wants to keep the old one intact as long as it can.
That is a very tough balancing act, and it’s tough to find many examples where it has worked. Usually, some combination of technology and the market moves much faster than the companies with lots to lose. See: The music business and the newspaper business.
The TV and movie guys watched those stories, and saw this coming over the horizon for many years. But seeing it coming is one thing. Doing something about it is much harder.
This article originally appeared on Recode.net.