I’m Daniel Anstandig. I’m a tech investor, founder, and CEO, and my passion is bringing new technology ideas to life.
I started early as an entrepreneur and my professional experience and interests range from media to entrepreneurship, artificial intelligence, and even the future of music. In my podcasts, I’ll be discussing where we are headed and how we’re going to get there. Together we’ll examine companies and opportunities large and small across multiple sectors. After all, the best way to get to the future we want is to create it now.
In this blog, we frequently talk about the subscription economy and growth/traction of streaming services. That leads me to this…
Dear Mickey / Disney,
It’s time to take a big step. It’s time to acquire Netflix and Roblox, and if you have to, sell Hulu.
I’m suggesting that there is a massive opportunity for Disney to establish an even bigger global footprint, which comes just as streaming platforms are being forced to make some significant changes.
While Disney hoped to achieve better earnings for the second quarter of 2022, Disney+ surpassed expectations. The company reported adjusted revenues of $19.25 billion, lower than the expected $20 billion. On the other hand, Disney+ added a whopping 7.9 million subscribers to bring its total to 137.7 million, surpassing analyst estimates by around 2.7 million subscribers.
Before we can explore the benefits of such an acquisition, we first must talk about Disney’s potential baggage holding the company back: Hulu.
Is Hulu Baggage for Disney?
An increasing number of investors are calling on Disney to drop Hulu and make a new acquisition, and the argument for such a scenario is strong. Hulu is struggling to keep up with its fast-growing competitors, and it is looking like the company could be hitting a plateau. With a reported 45.6 million subscribers in the second-quarter report, Hulu has only managed to grow its subscriber base by about 1.5x. Respectable but small in comparison to Disney+ growing by more than 5x and ESPN+ by more than 3x.
Hulu has two key issues: .
Hulu’s Problems = Netflix’s Strengths
Netflix has a global footprint and abundant original content. Despite many challenges at Netflix over the last few months, such as a loss in subscribers for the first time in nearly 20 years, the company has been unwavering in its commitment to achieving a strong global presence. With an established presence in 190 countries, the Netflix intro has become truly universal. (Tah dah!)
Ask anyone what their favorite streaming series is, and there’s a good chance you will hear something along the lines of Squid Game, Bridgerton, Money Heist, Ozark, The Witcher, or the highly anticipated Stranger Things, whose recent season 4 broke Netflix’s record for biggest-ever premiere weekend of an English-language series with 287 hours viewed the week of May 23-30. What do all of these have in common? They are all Netflix originals. Remember Tiger King? Netflix original.
According to 2021 Morgan Stanley Research, 39% of respondents indicated that Netflix was the premium/OTT service with the best original programming. And that is huge given the incredible amount of competition on the market. The second choice was Amazon at just 12%.
It’s clear that Netflix is the leader in original content, and the company has even grander plans. It is expected that nearly half (46.5%) of the company’s projected $18.92 billion budget will go toward original programming in four years, compared with 37.8% in 2020. At the same time, content acquisition costs will decrease from 62.2% in 2020 to 53.5% in 2025.
All of this makes the two companies a perfect match, and a Disney acquisition of Netflix would turn the combined venture into an unstoppable force in the realm of original programming.
Entertainment for Kids
While Netflix has a lot of great options for original content, most parents would not consider it their first choice for a streaming service that caters to kids. But Disney definitely owns that hill as a leader in entertainment for kids, providing for one of the few areas where Netflix is limited.
While there has been an industry focus on streaming content geared toward teenagers or young adults, there is also a fierce competition for content appealing to younger consumers. Disney’s most acclaimed animated series for children, Doc McStuffins, won a 2014 Peabody Award. Series creator Chris Nee decided to take her creativity to another platform after cutting a deal with Netflix despite having a “great situation” at Disney. Nee went with Netflix so that she could have more “creative freedom.” Situations like these show just how mutually beneficial a Disney acquisition of Netflix could be. It would eliminate competition while also bringing together the best creative talent in the industry.
Roblox as Another Option
This brings us to a potential second option for Disney: a Roblox acquisition. Roblox is an online platform and storefront where a community of players can play games made by other developers. Instead of a standalone game, Roblox is a type of platform where all of its included games are made by its users. To date, users have published over 20 million games, and over half of all U.S. kids under age 16 played on Roblox in 2020. The platform is showing incredible growth, with over 54.1 million daily active users and community developers pulling in over $328 million. Roblox’s market cap is $17.75 billion at the time of the publishing of this article.
A Roblox acquisition would be far cheaper than Netflix while also bringing some of the same potential regarding entertainment for kids, which is why talks are growing around the subject. Roblox would not provide the same streaming potential as Netflix, but it would help Disney get involved in interactive media and video games. And since Roblox’s audience primarily consists of children, it makes perfect sense for Disney.
Disney has made previous ventures into mobile gaming with little success, but Roblox would bring some much-needed expertise to the table this time around. With that said, Roblox would be a far smaller acquisition than Netflix, and it would take a long time before Disney noticed any significant impact.
Creating Tomorrow’s Media Powerhouse
With an acquisition of Netflix, Disney would secure its position as the future powerhouse in streaming. With the market undergoing many changes and disruptions, especially due to shifting consumer behavior coming out of the pandemic, it’s time to make some big shifts.
Hulu is showing signs that it can’t grow. The platform’s limited global footprint and lack of unique original content seem to be impossible to overcome in this highly competitive space. On the other hand, Netflix excels in these areas and would create all kinds of brand new opportunities for Disney. The acquisition would be highly prosperous for both parties, and if Netflix proves to be too big of an undertaking for Disney, the company should look towards its next best option in Roblox.
And while I have your attention, Mickey, my 8-year-old nephew is interested in early consideration for your internship program! He’s a Roblox fanatic, a Buzz Lightyear expert, and a junior entrepreneur — what’s not to love?
As pandemic era restrictions ease worldwide and inflation rates hit record highs in the USA, we see signals that consumers are starting to cut costs on services they leaned on heavily amid the COVID-19 era. Streaming services and major cable companies have seen an uptick in cord-cutting in recent months—with companies like Comcast, Hulu+, Charter, and Dish Network losing hundreds of thousands of subscribers in the last year. One of the largest streaming services worldwide, Netflix reported a loss in subscribers for the first time in around 20 years.
Streaming and entertainment are not the only types of subscription models facing pressure amid changes in consumer spending and habits. Curated subscription and retail subscription models increased subscribers during the pandemic, likely because retail shops and restaurants were closed in many places. However, with restrictions easing, consumers could opt out of retail subscriptions to shop in person. Both Fabletics and Savage X—two clothing retailers that have built their empires on the monthly subscription model—plan to expand their retail storefronts in 2022 to accommodate this shift.
This shift in consumer habits signals turbulence in the subscription space for media and entertainment giants. With so many subscriptions for consumers to choose from, many opt to share accounts with friends and family to cut costs. For example, while Netflix reported a loss in subscribers, it saw a rise in new users—suggesting that many users combine accounts among friends and family.
Subscription Fatigue is Real.
With so many subscriptions to choose from and only so many dollars per month in the budget for those services, many Americans are opting to cancel non-essentials in favor of more affordable options. Sharing accounts is definitely an option for streaming subscriptions—but other, free options are seeing a rise in subscribers.
Disney has started offering park discounts to its Disney Plus subscribers as a way to funnel consumer spending dollars into different sectors of the company. The company could be trying to make up for its losses amid park closures during the pandemic (by the way, $DIS is down 34% YTD, as of time of publishing), or it could be a way to incentivize subscribers to keep their Disney+ subscription after missing growth expectations in Q1. The streaming platform will also implement a lower-cost, ad-supported tier for consumers later this year—a move that Netflix will also likely adopt in the future to combat subscriber losses.
Streaming Giants See New Competition Against Free, Ad-Supported Television
Free, Ad-supported Television (FAST) platforms such as Tubi, the Roku Channel, and Amazon Freevee (formerly IMDB TV) have all seen strong growth in recent months. Many consumers report that they would be willing to watch several minutes of advertisements per hour in exchange for lower subscription fees, or no subscription fees at all. A Deloitte study shows that consumers are increasingly turning toward FAST subscriptions to cut back on monthly spending, showing broadcasters that hope for growth in the future could come from lower consumer spending and higher advertising revenue.
Hulu pioneered the ad-supported streaming platform with its lower fee for ad-supported streaming. Networks have followed suit with low-cost or free platforms to earn revenue. With traditional streaming services such as Netflix, companies are limited to their earnings potential when they come only from subscription fees. Advertising allows streaming services to increase their earnings potential at scale.
What This Means For Broadcasters
With more consumers turning toward FAST subscription models to curb their spending, advertisers are likely to turn increasingly toward streaming. New data rules and regulations in the social media space have also limited advertisers’ abilities to hyper-target consumers with personalized ads.
Meta-owned Facebook announced that it stands to lose up to $10 billion in advertising revenue in 2022 after Apple rolled out an opt-out option on app tracking and other types of data mining in recent years. As targeted advertising on social media becomes more expensive and regulated, many advertisers are turning toward more traditional methods like television advertising and newer methods of advertising such as influencer marketing.
An IAB insights report shows that streaming ad spend grew about 21% in 2021, with continued growth expected as more streaming services adopt an ad-friendly model. Other forecasts predict that global ad revenue among streaming services could double in the next few years—with projections showing an industry valuation of about $32 billion by 2026.
While these changes in data privacy and consumer habits are good news for smaller broadcasters that seek advertisers, it does mean that competition among broadcasters will ramp up once streaming giants like Netflix and Disney begin seeking advertising revenue.
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