Disney Jumps into the OTT Market

Disney is jumping into the OTT fray joining Netflix, Amazon Prime and others that offer a unique library of content for online viewing. The online product will be marketed as Disney+ and will launch on November 12 in the US, later worldwide. Disney seems to be taking the same low-price philosophy as other online start-ups with initial pricing at $6.99 per month, or an annual subscription for $69.99 for the first year.

Disney is counting on a unique customer base of what it calls ‘true fans’ that adore everything Disney. I can attest they exist and have a wife and daughter in that category. Disney thinks these fans will gain them a lot more subscribers than other competing services.

The company is already sitting on one of the largest libraries of valuable content. Disney has been making huge revenues over the years rolling out old Disney classics periodically and then withdrawing them from the market. I’ve seen speculation that Disney plan to offer their full catalog of Disney classics as part of the offering, but we won’t know for sure until the service is available. Disney has a lot of other popular content as well such as the Star Wars and Marvel comics franchises.

Analysts say the $6.99 price is too low and Disney seems to acknowledge it. I read where an analyst at BTIG Research said that Disney didn’t expect for the service to be profitable until 2024 until the service has over 60 million customers. It’s hard to fathom needing that many customers to break even. But Disney is not quite the same as other programmers. Perhaps they are willing to take a loss on the video library in order to drive revenues in other ways. There has to be a big upside to have over 60 million fans watching your content and advertising and buying Disney merchandise.

The Disney launch enters an already crowded market and in doing so makes it that much harder to justify cord cutting. The OTT services that mimic cable TV like DirecTV Now, Hulu, Sling TV, Playstation Vue, FuboTV, and others have increased prices to rival a subscription to an expanded basic line-up from a cable company. There are then dozens of add-on options of other programming like Netflix, CBS All-Access, HBO Now, and the upcoming Apple TV that lure viewers with unique content. It’s starting to be clear that cord cutting is not cheaper unless a viewer has the discipline to restrict content to only one or two services.

Something else is starting to become clear in the industry, which is that customers who buy traditional cable TV are also subscribing to OTT services like Netflix. At the end of last year PwC reported that the number of Netflix subscribers in the US had surpassed the number of traditional cable subscribers.

The PwC study intended to understand the viewers of OTT content. They wanted to see how viewers handle the huge array of programming options. One of their most interesting findings is that age is becoming less of a factor in understanding OTT usage. When PwC started watching the market four years ago it was easy to identify differently buying and viewing habits between younger and older viewers, but those differences seem to be converging.

For example, PwC found that 28% of older consumers had cut the cord, while in earlier years it was a much smaller percentage. They found that 61% of older viewers now watch content on the Internet, up from less than 50% just a year earlier. They found that there was a higher percentage of customers who claimed they are loyal to traditional cable TV from younger viewers ages 25-34 (22%) than with those older than 50 (16%).

One of the most interesting finding in the PwC study was the extent to which people don’t like for video services to suggest viewing. Only 21% of viewers feel that the suggested viewing on sites like Netflix is better than what they can do themselves. The biggest complaint about all OTT services is the ease of finding content and on 12% say they can find the content they want to watch easily.

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