Why Disney's Streaming Move Won't Stop Netflix


By: R. Scott Raynovich

It's a big headline, but it may be relatively meaningless over the long run. Disney (DIS) this week made waves and headlines by announcing that was buying its remaining stake in BAMtech, a streaming technology company, so that it build its own streaming service to compete with Netflix.

BAMtech serves many digital media clients, including Major League Baseball (MLB) where it supplies the system for streaming MLB games. Under terms of the transaction, Disney will pay $1.58 billion to acquire an additional 42% stake in BAMTech. Disney previously held a 33% stake in BAMTech under an agreement that included an option to acquire a majority stake over several years.

Streaming Direct to Consumer

Disney's announcement that it will move to go direct to consumers to build it's own digital media strategy -- and pull back content from Netflix -- set off a flurry of trading activity on Wednesday, as the shares of Disney, Netflix, and many other media companies all sold off from 1-3%.

Why would they all sell off, you ask? Probably on the fears that a digital streaming war is building, which will require all media companies to invest in their own streaming platforms, consuming cash. But nobody can know for sure.

But should you really worry about Netflix? Netflix has only paid about $200 million out of its $7 billion in content deals to Disney, and it's increasingly relying on its own platform. At the same time, Disney executives left the door open to still licensing some content to the Netflix platform -- indicating it wouldn't pull everything off the platform. That's a good hedge.

Is Netflix King?

While watching the CNBC investment show Fast Money, commentators debated whether going it alone was a good strategy. One CNBC commentator, Steve Grasso, said the debate about individual streaming services is whether or not people want to load dozens of individual apps on their phones to go directly to their favorite content. Grasso argued that people want to do that.

Yes, that is what the debate is about. But this logic that people want to download 20 apps from different content services seems flawed, as aggregation has always proven a powerful tool in media distribution. That's why Netflix is so popular -- consumers want to go to one source to have an easy way to choose from a variety of content that they can stream on demand.

At the same time, Netflix has proven its own shows are big draws -- and it appears to be more efficient at producing such content, using analysis to predict what people will like.

The bottom line? One press release from Disney is not likely to slow the Netflix momentum.

For a full picture of the Industrial IoT market, purchase our 50-page Ultimate Industrial Internet of Things (IIoT) Report, which covers a wide range of communications and cloud technologies that are being applied to businesses around the world to provide connectivity, analysis, automation, and optimization of a range of industrial applications. Use discount code "EDGE" for 20% off.