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.