In a February earnings call, Disney CEO Bob Iger estimated that the company would forgo at least $150 million in year-over-year licensing revenue as it rerouted its content from Netflix (NFLX) to its forthcoming streaming service Disney+. Now, the Magic Kingdom is willing to turn its back on millions more in order to strike a blow against the market-leading rival streaming service.
Disney will no longer run Netflix’s advertisements on linear networks ABC, Freeform and FX, Variety reports, though ESPN will still feature Netflix commercials. This tactic applies to several major streaming services that don’t possess an existing relationship with Disney that extends into distribution and programming. The strategy will forfeit millions of dollars in advertising revenue in multiple forms, but limit the exposure Disney provides to its direct competitors ahead of its over-the-top launch next month.
Apple TV+, also debuting in November, has begun aggressively marketing its upcoming originals on linear television. AT&T WarnerMedia’s HBO Max and Comcast (CMCSA) NBCUniversal’s Peacock are expected to follow suit before their respective Spring launches. Despite standing on opposite ends of the television divide, linear networks and streaming services have been able to do business with each other.
Disney’s linear rivals are likely rejoicing at the news as they prepare to accept all of that deep-pocketed streaming money while ABC, Freeform and FX look for less lucrative alternatives. But, it’s worth noting that Iger is playing the long game here. Under his leadership, Disney was the first major entertainment media conglomerate to embrace digital distribution as the studio moved quickly to sell content on iTunes in the mid-2000s and erect the ABC Media Player with an ad-supported model.
The decline of Pay-TV is accelerating as nearly three million customers opted out of a traditional cable package last year. According to a recent Roku report, there are 23.8 million cord-cutting households in the U.S. and 55 million traditional with the gap closing every month. Television is moving toward a distribution agnostic model and Iger wants Disney+ positioned to lead the transition. One avenue to that reality is to limit Netflix’s exposure as much as it can.
Analysts believe Disney+ could attract 15 million subscribers within its first year with 90 million as the goal within the next five years. At this time, Netflix boasts 60 million domestic subscribers and 90 million overseas. Let the games begin.