The Disney-Amazon Streaming Standoff: Who Holds the Leverage?

Who holds the cards in the growing streaming squabble between Disney and Amazon? It depends on who you’re asking. The Mouse House and the tech behemoth are currently in a standoff: Amazon wants a cut of Disney’s ad inventory — up to 30% — from its array of streaming apps, the Wall Street Journal reported on Thursday. Disney isn’t going for it, and it’s the reason Disney+, its upcoming streaming service, currently won’t be included on Amazon’s Fire TV devices when it launches next month. Industry experts believe a potential deal, like all others, will hinge on one thing: leverage. And you can make a compelling case for each company having it. Missing out on Disney+, a service projected to be a hit with subscribers right out of the gate, would be a major whiff for Amazon, according to Bruce Leichtman, president of Leichtman Research Group. Without it, Amazon’s streaming-device competitors like Roku and Apple TV would stand to reap big benefits. “How much leverage does Amazon really have? There are so many other ways people can watch a streaming service,” Leichtman said. “Certainly, Disney or anyone else with a streaming service wants to be carried on all platforms. But if they’re not carried on Platform X, there’s Platform A, B,C, D, E and F.” According to the Journal, Amazon is considering the nuclear option of removing all of Disney’s current streaming apps — like ABC, ESPN and the Disney Channel — if a deal isn’t reached. This wouldn’t be wise for Amazon, Leichtman said, because it depends on customers streaming from Fire TV rather than its competitors. It would not only lose out on the hours viewers spend watching popular networks, but the millions of viewers poised to pay $6.99 per month for Disney+. The Mouse House forecasted that it will grab up to 30 million U.S. subscribers by 2024, and that might be on the low end; a recent survey from UBS indicated Disney+ — with its library of new shows, Marvel content and classic franchises like “The Simpsons” and “Star Wars” — could hit 54 million subscribers by that time. Disney’s audience alone might be too big to pass up for Amazon. At the same time, Fire TV’s audience could be just as important to Disney as it seeks scale with a new service out of the gate. Amazon is duking it out with Roku for device supremacy in the U.S., and boasts more than 34 million active accounts worldwide. Amazon, Strategic Analytics told the Journal, holds about 29% of the streaming device market in the U.S. “Right now, Amazon will have the most leverage it’ll ever have with Disney, because Disney needs to have a successful launch,” said Paul Hardart, head of the Entertainment, Media and Technology Program at NYU. “With Amazon controlling 29% of the market, they have a lot of leverage; Disney can’t afford to not be on their service.” Disney, the Journal reported, is willing to give up 10% of its ad inventory to Amazon. Hardart, a former Warner Bros. executive, said it’s more important for Disney to secure a short-term deal than win the percentage argument with Amazon. Disney, more than anything, needs to grab subscribers. It lost $1 billion on streaming last year, and is continuing to spent big bucks to get Disney+ off the ground. “Disney’s goal is to get as many subscribers as possible. Then, in the future, they’ll have a lot more leverage,” Hardart added. “If the terms of the deal are relatively short, one to three years, they can always renegotiate and they’ll have a lot more power.” Both analysts still expect a compromise to be reached in time for Disney+ to launch on Fire TV at the same time it hits Apple TV, Roku and other devices. It’s a sentiment shared in house, too. One Amazon employee familiar with its streaming business said the company was “optimistic” a deal would be worked out by Nov. 12. “It would hurt us both,” the person said, if Disney+ wasn’t available on Amazon devices. Amazon did not respond to TheWrap’s request for comment and Disney declined to comment. This isn’t the first time a streaming app and a device maker have been at odds. Amazon was famously on the other end of this situation just a few years ago, when its Prime Video app was missing from Apple TV. Eventually, the two sides worked out a deal. While the terms of the agreement weren’t disclosed, the Prime Video app ended up hitting Apple TV around the same time Amazon, after a two-year pause, started selling Apple TV devices on its online retail site. As streaming continues to gain traction — and with new entrants like HBO Max and NBCU’s Peacock coming next year — more of these negotiations are bound to take place. Device makers like Amazon need the top apps to lure new customers — and keep current ones. But there are three buckets they look to draw from in order to increase their revenue — ad inventory, splitting subscription revenue, or, as Roku does, getting apps to pay a one-time fee to stream on their devices. Hulu, for instance, does not share ad inventory or revenue with Roku, according to one person familiar with its business, but does split some of its subscription revenue tied directly to the device. (The Journal pegged that revenue at 15% of new sign-ups.) Analysts will keep an eye on how these companies work together in the years ahead. In the meantime, whether you think Amazon or Disney has the most clout right now, one thing is clear to Hardart: “They both need each other.”