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Disney’s Latest Blockbuster Isn’t Star Wars—It’s the Streaming Wars

On the mid-April day that Disney hosted a show-of-force presentation for investment analysts, the entertainment giant converted its cavernous Soundstage 2 in Burbank, Calif., where Mary Poppins and Pirates of the Caribbean came to life, into an auditorium for knowledge workers. Wall Street types sat rapt as Disney opened with a video splicing its decades-old film and TV library with that of 21st Century Fox, recently acquired for $71 billion. The key dramatic moment: a shot from the stunning rock climbing documentary Free Solo—from formerly Fox-owned National Geographic—with the heroic Alex Honnold perched untethered on the rock face, another climber intoning: “There’s incremental advances that happen in all kinds of things. But every once in a while, there’s just this iconic leap.”

Subtle, it wasn’t. Disney is taking a meticulously planned leap itself into the market for Internet video streaming, simultaneously offering new products while forgoing billions of dollars in revenue by removing its content from rival entertainment platforms like Netflix. It is easily the boldest attempt in years by any established behemoth to shift its business model while operating an enterprise that’s forecast to bring in $72 billion in fiscal year 2019.

The particulars wowed investors, who bid up Disney’s shares 13% in the days after the event. Its new service, Disney+, debuts Nov. 12 in the U.S. It will offer the prodigious libraries of its Disney, Pixar, Marvel, Lucasfilm, and National Geographic brands in one bundled service for $7 a month—half Netflix’s subscription price—or $70 a year. And Disney projected 60 million to 90 million subscribers in five years, two-thirds from outside the U.S. Longtime Disney CEO Robert Iger, who unexpectedly avowed he’ll step down when his contract expires in late 2021, bragged that “no content or technology company can rival” a catalog that includes Snow White, every Star Wars movie, and 30 seasons of The Simpsons.

Disney’s move is bold—and costly. It will immediately forgo $2.5 billion in revenue by removing Disney content from rival services. Todd Juenger, an analyst with brokerage Bernstein, reckons the pain will be bigger. He estimates the combined Disney and Fox collect up to $8 billion annually from licensing revenue, including from Netflix, and that Disney will eventually say goodbye to all of it. Juenger also frets that Disney will suffer by comparison with Netflix’s constant influx of new material. “We don’t think there will be any websites dedicated to ‘What’s new to watch on Disney+ this week,’ ” he says.

Disney’s share price has increased fivefold in Robert Iger’s 14-year tenureStefanie Keenan—Getty Images
Stefanie Keenan—Getty Images

Disney’s opening pricing gambit was shocking. Richard Greenfield, an analyst with independent research firm BTIG, thinks Disney made a mistake. Given the discounted annual price, Greenfield estimates Disney’s per-user revenue will be about $6.25. “It’s tough to make money at that level,” he concludes.

Cynics assume Disney’s rock-bottom price won’t last, and the company has more than a few financial levers to pull in the meantime. Disney+ is just part of its new strategy. The Fox acquisition gives Disney control of the rapidly growing Hulu streaming service, which makes money from ads and subscriptions, to add to the similarly ambitious streaming service run by Disney’s ESPN sports franchise. Disney also has no plans to stop collecting non-streaming revenue from its biggest properties, most of which will continue to debut in movie theaters.

Everyone watching the upcoming streaming fracas understands that at some point consumer “subscription fatigue” will set in. Amazon’s Prime Video, Apple’s upcoming Apple+ service, Netflix, and expected offerings from Comcast’s NBCUniversal and AT&T-owned ­WarnerMedia will all test the tolerance of the most avowed binge-watcher. That’s on top of cable and satellite bills for those who haven’t yet cut the cord.

For its part, Disney will apply maximum pressure to ensure its services are among those users choose. “There is no bigger priority for the Walt Disney Company going forward,” Ricky Strauss, head of marketing for Disney+, told investors near the end of the three-and-a-half-hour event. The company, he said, will push Disney+ in its theme parks, on its cruises, across its broadcast networks, and through social media and paid advertising.

After all, the 96-year-old industry icon has no intention of attempting a daring feat without a safety net.

A version of this article appears in the May 2019 issue of Fortune with the headline, “Disney’s Latest Blockbuster Isn’t in Theaters.”