Digital Disney: Transforming the Happiest Place on Earth
The leader in media entertainment, Disney faces an existential crisis with the rise of digital streaming. With ~200,000 employees, established brands, and a business inextricably linked to the traditional system, how can Disney transform itself in today’s digital era?
Disney is widely recognized as the leader in the media entertainment industry. With a rich history of groundbreaking films, from Snow White and the Seven Dwarfs in 1937 to Black Panther this past year, Disney has pushed the boundaries of art and technology. Even as early as Walt’s first marquee, full-length animated film, Snow White, he invented and deployed the multiplane camera that enabled simulated 3-D camera movement in a world that was restricted to a 2-D medium (1). While not “digital” in today’s sense of the word, Walt’s invention revolutionized animation and the viewing experience. Technological transformation has been core to Disney’s DNA. However, the rapid rise of digital streaming and new consumer behaviors have tested Disney’s ability to innovate. Of note, the traditional cable ecosystem or multi-channel video programming distributors (MVPDs) which historically has been growing year-over-year and been very lucrative for Disney and other major entertainment companies, has now seen subscriber losses due to Netflix, Amazon, etc., casting major doubt on the long-term viability of the industry. In 2017, Disney’s media networks and ESPN, properties that are linked with MVPDs, composed nearly half of Disney’s revenue and more than a third of operating income. The magnitude and speed of digital change has left many traditional media companies scrambling to adapt. So how does a behemoth like Disney, a vanguard of the traditional system, advance in the digital era?
While there are many products and businesses that Disney could focus on as the leading edge of change, I’m going to focus on digital content and creators. The rise of “long tail” creator bets and niche content plays, pioneered by YouTube and Netflix respectively, has resulted in an entirely new wave of consumer behavior, elevating the viewing habits of relatively small but intense fans to the mainstream. Disney first attempted to access the YouTube creator base with the purchase of Maker Studios in 2014 for $500 million and a $450 million earnout (2). Maker Studios, founded by a handful of YouTube stars in 2009, was a multi-channel network (MCN) which worked with creators to manage production, monetization, promotion, rights and agreements, programming, etc. However, MCNs did not own any content and only operated with creators through contracts. Thus, they could only generate revenue through ad rev share, limiting their ability to syndicate content. Despite these concerns, MCNs grew rapidly as more and more creators searched for ways to scale their channels. In 2014, before Disney’s purchase, Maker had 5.5 billion views per month across 55,000 channels and 380 million subscribers (3). Disney, late to the YouTube game, saw Maker as an opportunity to leapfrog other players in digital. Maker’s potential to repackage legacy Disney digital content while creating new, original Disney content was particularly attractive (4). However, the deal fell short of expectations – performance lagged, Maker slashed employee headcount, Chairman and CEO Ynon Kreiz and his replacement, Courtney Holt, left the company. The fragments of Maker ended up being folded into the newly created Disney Digital Network (5).
There were several factors at play during the arc of this transaction. First and foremost, Disney missed the magic that drives YouTube: creator-audience relationship. Maker owned neither the content nor the relationship with audiences. With the majority of views and revenues accruing to the top few creators, Maker faced concentration risk, both in revenue type and in creator base. Furthermore, creators could move to other MCNs after their contract expired. While Maker was a known brand among creators, few audiences recognized Maker as the infrastructure supporting their beloved YouTube stars. Disney assumed that the “value added services” of ad contracting and representation were drivers of Maker’s sustainable edge which could be easily ported over to other creators and Disney’s own YouTube channels. However, betting on the backend support functions misses the driver of success on YouTube. Talk with any YouTuber and you’ll hear that the most valuable asset they have is the trust with their fans. Visit any creator panel and the refrain of “authenticity” can be heard over and over again. The consistency in presentation and personality of YouTube stars makes them accessible and relatable to millennials and plurals. With weekly or even daily postings, fans view YouTubers as friends. Add to that the interaction through the comments section and other social media platforms (e.g., Instagram and Periscope), creators have multiple ways of staying connected, and thus, relevant to their fan base. Rivaling the fandom of traditional Hollywood stars, the audience of YouTube stars is young, digital savvy, and large. Disney did not see that the old “Hollywood” method of management and mechanics through agents and managers did not apply to digital. At a basic level, YouTube creators have embraced the direct-to-consumer trend. In the traditional Hollywood setting, the relationship between Hollywood stars and their fans was intermediated by many layers of agents, managers, and PR companies. YouTube stars go directly to their viewers.
The second issue with Disney’s thesis was creative. Similar to the cases of Havas and Tongal that we looked at this semester, the power of the community to create high-end, pro-sumer content was not adequately captured by Maker. Disney, similarly, did not understand the creative process of YouTube and thought that the Maker infrastructure itself would ensure the successful conversion of both creators and audience. Part of the strategic rationale for the Maker acquisition was creating native content for Disney’s own brands. The challenge was two-fold: creatively, the producers and execs at the respective brands wanted to maintain control over their IP. Once the IP was out in the wild, would Disney be able to manage the narrative? Would the masses put characters in inappropriate situations? Operationally, Disney, as a traditional “studio system” entertainment company, did not know how to work with a distributed network of community-based creators. The critical point here being “community-based” as the niche plays cater to the tastes of specific audiences, enabling different crowds to generate the content they themselves demand. The other side of the digital media story data, as exemplified by Netflix. As I mention in my Netflix post, Netflix used data and crowds to learn more about delivering a personalized entertainment experience to subscribers. Disney had no internal mechanism that both could understand that the “be all things to all people” philosophy doesn’t apply in the digital attention economy and could develop content relevant to different communities. The irony is that today, Disney relies on Tongal to create digital content which should fall in the wheelhouse of Maker Studios, the supposed maven of digital content creation.
The solution I would propose is more organizational rather than tactical or strategic. Top business and creative executives in Disney’s new digital arm need to understand that the metrics used to evaluate and greenlight traditional programs do not apply in the digital realm. Instead, creator-first approaches that enliven the existing fan base and attract new fans should be employed. Organizationally, that means bringing in and respecting digital content leaders. Similar to the suffocating corporate structure and stale leadership at Havas that crushed V&S, Disney’s lack of understanding regarding Maker after the acquisition destroyed the very magic Disney aimed to capture. Giving up some control to access the ideas and brilliance of top creators would help to not only develop new content ideas that engage audiences, but also give creators ownership and a sense of pride to be part of the Disney family. Secondly, top Disney executives must become “digital natives” themselves. The fundamental issue is that many top entertainment executives do not understand their customer. The belief that true artistry comes from select individuals, rather than the crowd, is a mantra that has worked well for big-budget Hollywood films. Yet, that mindset is slow, expensive, and risky (just look at Disney’s recent A Wrinkle In Time). To adequately compete in the attention economy, companies must be fast, relevant, and accessible. I defer to Jeff Bezos and his “customer obsession” approach when he says “good inventors and designers deeply understand their customer…[and] live with the design.” Thirdly, the integration of digital executives must complement the efforts of existing programs. One use case would be, around the time of a new Marvel Movie, creating original digital content for the Marvel YouTube channel could help increase organic buzz without spoiling the movie as fans hunger for more information and tidbits. The other way to boost integration is to split operations into digital and non-digital properties. The recently created division of “Direct-to-Consumer and International” captures many of the digital-first initiatives whereas “Parks, Experiences and Consumer Products” contains many assets that, while digital heavy like Parks, are tied to physical products and experiences. This top-down approach can succeed because of Disney’s strong leadership team. Fundamentally, the approach must be based on an organic understanding, appreciation, and integration of the differences digital dynamics from those of the traditional system. Initiating change within a company as established as Disney requires changing the mindsets of business and creative talent alike.
- How did the multiplane camera invented for “Snow White and the Seven Dwarfs” redefine animation? [Internet].; 2015 [updated Nov 23,; cited April 14, 2018]. Available from: http://screenprism.com/insights/article/how-did-the-multiplane-camera-invented-for-snow-white-and-the-seven-dwarfs.
- Why Disney’s $500 Million Acquisition of Maker Studios Is Proving Less Than Picture Perfect [Internet].; 2015 [updated August 17,; ]. Available from: https://www.entrepreneur.com/article/249659.
- The Walt Disney Company to Acquire Maker Studios, the Leading Network of Online Video Content [Internet].; 2018 [updated March 24,; ]. Available from: https://www.businesswire.com/news/home/20140324006303/en/Walt-Disney-Company-Acquire-Maker-Studios-Leading.
- It’s Official: Disney Acquires Maker Studios For At Least $500M [Internet].; 2014 [updated May 24,; cited April 14, 2018]. Available from: https://techcrunch.com/2014/03/24/disney-maker-studios/.
- Disney Reveals Digital Network Combining Maker Talent With Editorial Brands [Internet].; 2017 [updated 5/2/; ]. Available from: https://www.hollywoodreporter.com/news/disney-reveals-digital-network-combining-maker-studios-talent-editorial-brands-999507.
Student comments on Digital Disney: Transforming the Happiest Place on Earth
Interesting post! I really like the idea of creating original content for the Marvel YouTube channel as it seems like a good example of how the two can work together. When you mentioned that top Disney executives must become “digital natives” themselves, do you think this is really achievable? One thing that continually interests me is whether or not someone can overcome their previous biases to succeed in a transformation. I’d be curious to hear your thoughts on other aspects of Disney’s digital transformation (like what to do with ESPN) as well!
Thanks for the interesting post! I really liked that your solutions were organizational and easily digestible. Do you think that Disney needs to keep its digital arm completely separate from the rest of its content creation? It might be interesting to look at this problem through BSSE disruption theories to understand how an incumbent like Disney can best compete in this ever-evolving digital eco-system.
This is a seriously interesting post, thanks for writing! Much of this about Disney I did not know and it is interesting to see the ways in which they have tried to enter the modern age and have failed. One thing that struck me with this post is that many of their attempts have been through acquiring other companies and trying to add them into the Disney portfolio and have the ‘magic’ of one flow into the other, and vice versa. As your post clearly states, by not trying to build the products or content itself, Disney did not fully understand how the platform or ecosystem worked and so in trying to meld it into its own product suite often missed key opportunities for successful integration. As well as the organisational changes that you suggest in your post to be made, I wonder if Disney would benefit from trying to hire young and talented people to build out some of these communities themselves, instead of only acquiring them.
Thanks for the post! I totally agree that Disney will need to carry out some major organizational changes if it wants to stay sharp in content creation, but I imagine there will be some serious resistance at the executive level. After years of working their way up in the entertainment industry, a lot of the senior producers and executives at Disney have the privilege of enjoying a great deal of influence and control within their professional networks. Ceding control and making Disney a flatter creative organization may be what’s right for the company, but that could definitely conflict with the personal interests of the people needed to drive those changes.
Thank you for the post. Disney is indeed in a “digital” trouble all around. When researching Disney, I have learned how bloated the organization has become over the years and I struggle to see how a politically-charged hierarchy can appoint anyone from outside of the company and of Hollywood to some of the top political positions. My post about Pernod Ricard talks about exactly the same problem. I wonder if in case of Disney digital change can come from the bottom to the top? Maybe, in this case grassroots strategy should be recognized and implemented by business units and studios so it can disrupt the organization in a more realistic way. It will take longer indeed, but at least it will have a chance to survive and become native to Disney.
Thanks! I think Disney approached a proverbial “fork in the road” where they have to decide how to deal with Netflix – they have decided to build out their own competitive platform which continuing to be active in their long-standing content creation side. I think this is a bold move given the size and strength of the market leader, but I commend Disney for not just rolling over. While Disney did miss the magic of YouTube, I would argue all of the media conglomerates failed to understand this phenomenon at first. YouTube created something that most in the industry couldn’t have even seen coming, and it has changed the demand for live content dramatically.
Thank you for you an interesting post!
I found it really interesting that Disney failed to understand the importance of the relationship between the content creator and the user in their acquisition of Maker, and I wonder how this impacts the business going forward. As customer behavior changes, will Disney be able to change accordingly? Considering the size of the company and the long history, will it be able to react fast enough? Disney continues to attract significant talent due to their brand awareness and strong heritage, but is this sustainable in the future? As you mention, I believe that a change in mindset at the top of the organization will be key for future development. If top level managers do not fully believe and embrace the digital era, it is difficult to see how they will outperform competitors. Although the use of technology in production is part of the company’s tradition, it appears as though digital transformation in processes is not yet clear.
Another way they could maybe use to tackle this challenge would be to create partnerships with new content creators, and expose their employees to different ways of using technology that could then be imported into Disney.
Great post! Your post made me think of a conversation I had with Alan Horn about their strategy on creativity. He said that Disney would like to keep their creativity team absolutely internal, so that’s why Disney never co-produce any films/IPs with external partners. He pointed out that Disney experienced difficulties of communication and decision when they once tried partnership with outside creativity teams years ago. From his standpoint, the way Disney planned to face the digital disruption is to defense their core creativity capability – this is the core competence asset that would never be disrupted by technology. I wonder if this is a right argument, or Disney should really be more open minded and get more prepared for digital disruption.
My biggest question here is whether or not Disney should even be in the digital content space? As a company, it has made a strategic choice to pursue the blockbuster approach to content, which means few, (hopefully) high quality, premium offerings every year that are marketed as “events.” I agree that one of the reasons that the Maker acquisition failed was organizational structure, but I wonder if there is something more fundamental that caused it. It could be that Disney should not be in the user-generated content business at all. Not only does Disney not have domain expertise in the world of MCN’s (as you pointed out), it was also unable to take Maker creators and content and professionalize and/or distribute through its traditional premium content outlets. While going D2C is the right move, it’s more of a distribution decision than a content decision. I think one of the reasons why Maker failed in Disney is that their business model is not meant to support the long tail of creators, and that’s okay.
Thanks for the post. When i first figured that with creative acumen and ability to explore and innovate that they would be well equipped to handle digital transformation. This is a great example of how a companies resources, processes and priorities can hamper digital innovation. Outside of the case study you provided about Maker, I would also be curious to explore how Disney can leverage data and AI to better target the content for their major films and tailor it towards what audiences want. This is very much an art, but data science could strengthen the creative content that disney delivers
Great post. I think the entertainment industry is at a really interesting point in time. It feels like Disney is gearing up to launch a service that would compete directly with Netflix and Amazon in the coming years. As you point, ensuring that the organization is aligned behind this strategy will be critical. Disney clearly has the content, distribution, and brand necessary to create a successful business in this field but what they don’t have is an aligned organizational structure or the collection of data that Netflix has been able to refine over the last decade+.
Thanks for the post! The content and brand strategy for Disney in a digital world will be very interesting to observe. I’ve been really impressed with the digital progress Disney has made in the parks business. The Magic Band product that allows customers to pre-book ride times, get into hotel rooms, make purchases and more is not only a delightful customer experience, but also gives Disney an incredible amount of data they can use to tailor customer experiences and capture additional value. Hopefully the learnings and best practices from all parts of the business are being shared across the different units.
Fantastic post, thank you! Like Haley, I’m curious whether the old guard can actually become digitally-minded, as opposed to simply reacting to trends or financial outcomes that hint at the importance of digital innovation and transformation. Some companies (e.g. Gucci) have opted to include a millennial- / Gen Z advisory committee within their organization that interfaces directly with the C-suite. Do you think something like this would help Disney execs transform into “digital natives?”
Great post, I really enjoyed learning more about Disney’s technological and digital transformation journey. While I find it important, I believe owning the character development and relationship between customers has been Disney’s advantage and has protected it for many years. I am curious to hear more about which channels Disney could leverage to integrate AI and machine learning to develop content that appeals to a wider audience across different markets similar to what Netflix has been doing.
This is a great post! I’m actually starting at Disney as part of their Technology Management Rotation Program this summer, so I found this particularly interesting.
The YouTube –> premium content journey is something no one seems to have been able to crack. I know YouTube doesn’t actually make that much money off of ads. And, after interviewing people about Buzzfeed, Youtube, and a few other user generated platforms for a paper for a different class, I learned that the hope for many of these personalities was for them to become a pipeline of premium talent. However, unfortunately, someone who is a great vlogger on YouTube, doesn’t necessarily make for a great actor, so in some ways these talents are more limited by their current platform than one would think.
Is Disney slow to adopt? Yes; but it seems to me that they are at least trying to adopt new products and strategies, and not every one is going to pan out. I don’t blame their adoption process so much as it just not being the right fit for the brand. They are a premium content brand and are still one of the only brands that can charge $20 for a movie in any form (e.g. classics such as The Little Mermaid). I think that while this initiative didn’t pan out, it shows that they are trying to explore new ways and are open to new forms of content. In fact, if anything, I feel that Disney is in danger of diluting their brand by how widespread they are and on how many things they are focusing on. For this reason, I’m very excited about their restructuring, and wouldn’t mind if there were even a call to action to do something like what Apple did where they proclaimed they were going to discontinue some products in favor of bolstering efforts towards perfecting just a handful.
Great post. The question for me will be when they have to make a decision between whether to support their OTT service or their tentpole in theater strategy which will they lean towards. It’s easy enough to say both for now while there’s content that can go to both, but if there comes a time where there’s only room in people’s tastes for one superhero movie per year, will they go DTC or stay their traditional course. Also how will they manage talent that prefers traditional distribution over OTT.
Great post, and I love all the comments. Certainly problems we wrestled with at ESPN. If we believe BSSE’s Schools of Experience theory, the appointment of Jimmy Pitaro to head of ESPN should position them well to combat challenges entering the digital age. Although the Maker acquisition didn’t work out (and was IMHO influenced by the gold rush mentality into MCNs by traditional media companies, very few of which have worked out well), I remain hopeful about ESPN+ and the forthcoming Disney DTC services. Disney’s portfolio, including Lucas and Marvel, is stronger than anyone else. However, I predict consumers will be the losers in a few years – instead of a robust Netflix, they will likely end up paying much more for a plethora of DTC apps. Fingers crossed!