Would Netflix Live Happily Ever After Without Disney Content?

This week, Netflix announced an exclusive content deal with Disney that will bring a stable of movies to its popular streaming service. The deal will include titles from Disney, Pixar, and Marvel. The catch? Domestic subscribers won't have access to new releases until 2016.

Pundits are split on the high-profile deal. Some have hailed it as a big win for Netflix, and a sign the web service can compete with traditional pay-TV outlets for content deals. Others question the four-year delay for the agreement to go into full effect and its large price tag—one analyst indicated it could cost Netflix roughly $300 million per year. For that price, Netflix would have to boost its subscriber base significantly to make it worth while, according to Albert Fried analyst Rich Tullo, who adds, "It won't get to the level where it's going to be economical." Could Netflix's capital be better spent on original content?

It all comes down to what content is going to deliver Netflix the most bang for its buck. As CEO Reed Hastings has stated in past earnings releases, to maintain low prices, "We have to be choosy about what we are licensing for Netflix." In this particular deal, Netflix gains immediate access to Disney classics such as Alice in Wonderland and Dumbo, and according to Netflix, "in the months and years to come," customers will gain access to other popular titles such as Pirates of the Caribbean: Curse of the Black Pearl and The Sixth Sense. However, when it comes to new theatrical releases, it's not yet clear what films Netflix will get, since Disney hasn't announced its lineup for 2016.

The deal comes at a time when Netflix is increasingly focusing its strategy on original content as its viewership trends toward more TV consumption. At last count, two-third of domestic viewing was for episodic content, while movies represented the other third. Partly for this reason, the company has invested significantly in original shows such as Lilyhammer and House of Cards, the David Fincher- and Kevin Spacey-backed drama series set to premier in February.

Netflix has acknowledged that its biggest competition is coming from what it calls "the big four," a roster that includes itself, Hulu, Amazon, and HBO. The former three players are all getting into original content too, while HBO is the leader in the field. Hastings has said that it's possible several players will be successful in the industry, but that all depends on "which has unique content."

Unique content is key. It's the reason Amazon is spending money to get exclusive access to longer-tail shows like The West Wing. It's why HBO does not offer streaming access to its shows on competing services. And it's why Netflix is willing to spend hundreds of millions of dollars for deals like the one it announced with Disney.

But when it comes to building libraries of content, it's hard not to notice how much these services' catalogues overlap. Only recently, the most recent Captain America, Thor, and Iron Man movies were added to Netflix's catalogue. Roughly around the same time, these films appeared on Amazon Prime. To gain exclusive access to these titles, Netflix or Amazon would've had to spend significantly more money—would it even have been worth it? Especially as more players dive into the space—Redbox and Verizon will soon launch their own streaming service—thus heating up the bidding war for exclusive content?

In the current password-sharing era of streaming services, it seems the content that is most retaining or boosting subscriber bases is either original, episodic, or both. Sure, Netflix's deal with Disney might soon give it exclusive streaming access to the next Pixar blockbuster—but that's a one-off offering for many customers, and won't do enough to differentiate its content library in the long run. Personally, at least, the enjoyment I get from seeing a new title appear in my Netflix queue is ephemeral at best.

The fact is, the reason you likely find yourself asking your friend for his or her HBO Go password isn't for a new movie that may premiere on the service four years from now—it's for the latest season or last episode of Game of Thrones. Or if you want the his or her Comcast password, it's for Showtime's latest Homeland episode.

That unique, original, and episodic content keeps customers addicted to streaming services. And it's going to keep them subscribing for future seasons to come. As Hastings phrased it once in a letter to shareholders, Netflix will "[use] these original series to strengthen our reputation and build deeper emotional ties to consumers."

It's doubtful Netflix will foster that same emotional connection from Finding Nemo 2. But it will likely foster that connection from its release of the new season of Lilyhammer, as well as the long-anticipated return of Arrested Development this spring.

[Image: Flickr user Vex]

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  • Jessica

     Disney is a big piece of the content pie, so I can only imagine that the price tag is going to heavily weigh on Netflix. I’ve been working in one of DISH’s call centers for over three years, so I know that good content can come at a price. I never have to worry about that or losing good titles because I use DISH’s Blockbuster @Home for my entertainment. It’s the best deal on the market since I can stream and rent DVDs, Blu-rays, and video games for one low monthly price, including everything Disney. I’m curious if Netflix will be able to offer their new content in 2016 at the same price that they charge their customers now.