3 Reasons Why Disney Should Buy Netflix (Guest Blog)
Wall Street analysts are mostly sour on a deal but there are key reasons it would make strategic sense
Ben WeissGuest Writer | October 11, 2016 @ 2:55 PM
Recently, there has been speculation on Wall Street that Disney will buy Netflix. Many media analysts don’t believe that Disney should do the deal.
The analysts are missing three key reasons why a Netflix acquisition would benefit Disney’s long-term competition position.
1. On-demand access for kid consumers
Disney’s dependence on theatrical distribution is an increasingly insufficient model to build lasting emotional connections with children, Disney’s most important customers. Disney films establish a powerful emotional bond with children in a movie theater. But then, after the credits roll, right when the bond is at its height, the movie disappears for months. The vanishing act allows Disney to wring maximum profit from the film through windowing.
But children don’t care about movie studio economics. What children want is access to the characters that they love, all of the time. They want to watch and re-watch scenes. They want to listen to a song on repeat. Access to these characters and stories can provide hope, comfort, and inspiration. These emotions should be Disney’s most valuable currency.
In the past, Disney could get away with denying kids access to its films in order to serve its business interests because there were few easy-to-use products that put children safely in charge of their entertainment experiences. But that is no longer the case. During that antiquated window in which Disney films vanish, Netflix can provide children with unfettered, on-demand access to new characters that will capture their imagination and affection.
Netflix has more data on the consumption of Disney content than Disney does. This data set will grow exponentially as Netflix expands. At this point, there is no way for Disney to replicate this data without buying Netflix. Any Wall Street analyst who argues that Disney could recreate this data by starting its own streaming service fails to appreciate the attendant complexity of operating a global streaming service at scale. Execution must be flawless every minute of every day. Disney does not have these capabilities and it will not develop them internally as a public company.
A large and rich data set on global entertainment consumption will be an increasingly valuable strategic asset. The owner of this data will be able to build production budgets more efficiently, reduce variable marketing expenses, create better consumer experiences through personalization, and innovate with new forms of content. Disney will be structurally disadvantaged if it does not position itself to acquire and synthesize this data.
Disney should assume that within five years, Netflix is going to enter the original animated feature film business. High-quality animated feature films are a valuable form of global IP. The films play everywhere in the world, the franchises endure for decades, and the ancillary businesses are lucrative.
For Netflix, the economics will be even better because Netflix won’t need to to monetize these films solely at the box office. As windows collapse, films will be available to consumers on all screens, day-and-date. Families will be able to take their kids to a Netflix animated feature at the theater. If the kids love the film and want more, they can watch it again the next night, included with their Netflix subscription.
This flexibility means that Netflix can cause headaches for studios that depend on securing prized opening weekends. Disney does not want to be in a position where it needs a big opening weekend to launch a new global animated IP against a new Netflix animated feature that is opening the same weekend, but does not need to do big box office in order to support the film’s economics. The surest way for Disney to prevent that future conflict is to buy Netflix before the strategy is set in motion.
15 Most Beloved Disney/Pixar Animated Shorts, Ranked (Videos)
Both Disney and Pixar have left a mark on animation that no other studios can match, and for both, their origins can be traced to animated shorts. Pixar has accompanied all of its feature films since its second feature film ("A Bug's Life") with opening shorts, and Disney has recently followed suit with shorts that range from groundbreaking experiments to revitalization of their most classic characters.
15.) "Tin Toy" (1988) -- This is the short that saved Pixar from financial ruin, became the first CGI film to win an Oscar, and led to Disney making a deal with Pixar to create "Toy Story." The baby that chases after our toy hero was stuck in the Uncanny Valley when the film first came out and looks even worse in the years since. Still, it went a long way to showing the world the sort of storytelling that could be made with computer animation.
14.) "Lorenzo" (2004) -- Designed for a "Fantasia" film that never got completed, "Lorenzo" features a spoiled fat cat who makes a big mistake when he mocks a black cat for not having a tail. The black cat hexes the tubby feline, causing his tail to come alive and wrap him into a dance scene set to an Argentinean tango.
13.) "One Man Band" (2006) -- A whimsical tale with Pixar's most creative use of music. Two street performers play multiple instruments simultaneously in an attempt to win the money of a young girl who wants to see a show.
12.) "Geri's Game" (1997) -- Pixar put its short film projects on hold during the 90s to focus on building profits with feature films and commercials. They returned to the format in a big way with an Oscar-winning short featuring an old man playing chess against himself. It's notable for being the first Pixar project with a human main character after years of toys and insects in the lead.
11.) "For The Birds" (2001) -- Pixar's third Oscar-winning short featured a large, gangly bird trying to befriend a bunch of snobby little birds that wanted nothing to do with him. To animate the film, Pixar developed a new animation tool to allow for the birds to have feathers that moved individually.
10.) "Sanjay's Super Team" (2015) -- A deeply personal Pixar short made by director Sanjay Patel to show the internal conflict he felt as a kid between his family's Hindu traditions and the pull of modern Western culture. The cartoon features Sanjay as a kid imagining Hindu deities as superheroes much like the ones he watches on Saturday morning.
9.) "The Little Matchgirl" (2006) -- Here's a rarity: a Disney film that doesn't have a happy ending. Set to a string quartet piece by Alexander Borodin and based on a Hans Christian Andersen tale, the story depicts a girl stuck in the cold streets of Moscow at Christmas.
8.) "How To Hook Up Your Home Theater" (2007) -- In the 40s and 50s, Goofy became a prominent member of Disney's stable with the "Everyman" shorts, a series of cartoons where he would clumsily struggle to do things like play baseball and do a waltz while a droll announcer provided instructions. Disney brought back the format with a topic every sports fan can sympathize with: setting up an HDTV and surround sound in your living room.
7.) "Runaway Brain" (1997) -- A common complaint about Mickey Mouse is that in modern times he has become more of a corporate mascot than a cartoon character. The Disney shorts restore him to greatness, particularly this macabre tale in which a mad scientist switches Mickey's brain with that of a monster named Julius, leading to the creepy sight of Mickey's face turning into a sharp-toothed visage.
6.) "The Blue Umbrella" (2013) -- A dramatic change in Pixar's visual style. The story of two umbrellas befriending each other is what one expects from the studio. What's unexpected is the realistic city the story is set in, swapping out Pixar's usual cartoon style with an attention to detail you'd see in "Batman: Arkham Knight."
5.) "Get a Horse!" (2013) -- A hilarious and powerful retrospective on the evolution of Disney animation. What starts as a throwback to Mickey Mouse's 1928 roots quickly transforms into a fourth-wall breaking blend of 2D and 3D animation. The cartoon also reuses archival audio of Walt Disney for Mickey's voice.
4.) "Piper" (2016) -- The newest and most detailed Pixar short to date, starring a baby sandpiper bird who overcomes his fear of the waves to forage for clams on the beach. The shore is rendered with the same attention to detail as "The Blue Umbrella," culminating in an underwater scene where you can see every grain of sand.
3.) "Paperman" (2012) -- The most visually striking work Disney has produced this decade. This short features a cubicle worker trying to get the attention of a woman in the next building over with paper planes. Presented in black and white with a blend of computer and traditional animation, it was the first Disney short to win an Oscar since 1969.
2.) "Day and Night" (2010) -- Two 2D animated characters symbolizing day and night squabble over which of them is better. In addition to having one clever sight gag after another, the short provides commentary on prejudice and fear of the unknown without its characters saying a single word.
1.) "Destino" (2003) -- Disney has made nothing like this before and likely never will again. In 1945, Walt Disney began a collaboration with Salvador Dali that was shuttered due to financial struggles. Over fifty years later, Walt's nephew, Roy E. Disney, commissioned the company's French animation studio to make a short based on Dali's perplexing storyboards. The result is a cryptic but beautiful short that brings Dali's paintings to life.
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From Mickey Mouse to ”Paperman,“ ”Tin Toy“ to ”Piper,“ Disney and Pixar have created animated gems with their recent shorts
Both Disney and Pixar have left a mark on animation that no other studios can match, and for both, their origins can be traced to animated shorts. Pixar has accompanied all of its feature films since its second feature film ("A Bug's Life") with opening shorts, and Disney has recently followed suit with shorts that range from groundbreaking experiments to revitalization of their most classic characters.
Ben Weiss is the founder and chief investment officer of 8th & Jackson, a New York-based investment fund. The fund focuses on media and telecom. Mr. Weiss resides in New York City.
