Disney addresses disruption by moving out of linear television

In a move that is in line with the digital strategy of most modern media companies, Disney CEO Bob Iger recently announced that the company would be making a transition out of linear television as the platform is showing slow growth. This follows a similar decision by CNN (made in 2021) to move towards streaming as consumers move away from cable television.

This is a significant decision by a company that made the majority of its profits off its television assets and indicates that, despite the fact that Disney programming remains popular, the medium through which it is being delivered is proving to be unpopular.

Content needs to be immediately available on the platform of choice at the time of the customers choosing. The price point needs to be perceived as value for money. This framework can be applied to all media. Old or new Digital distribution is the only way to achieve this. More importantly streaming content seems to be the audience choice.

Major changes

The article points out that Iger returned to the helm of the company in November after Disney’s board ousted Bob Chapek with a two-year contract through 2024 and plans to find the next successor.

“After coming back, I realized the company is facing a lot of challenges, some of them self-inflicted,” Iger told CNBC’s Faber on Thursday, noting he’s accomplished a lot of work in seven months, but there’s more to be done. (NBCUniversal is the parent company of CNBC and NBC News.)

At the top of the list is assessing the traditional TV business, Iger said on Thursday. Disney owns a portfolio of TV networks, from broadcast station ABC to cable-TV channels like ESPN.

The article adds that Disney is going to be “expansive” in its thinking about the traditional TV business, leaving the door open to a possible sale of the networks. “They may not be core to Disney,” Iger said, adding the creativity that has come from those networks has been core to Disney.

Strategic partner

Cable-TV channel ESPN is in a different bucket, however. On that front, Iger said Disney is open to finding a strategic partner, which could take the form of a joint venture or offloading an ownership stake.

The article points out that Iger said when he had left the company, he had predicted the future of traditional TV and had been “very pessimistic,” and has found since his return that he was right in his thinking, adding it’s worse than he expected.

Signs of restructuring

When Iger last spoke with Faber in February, soon after announcing a major restructuring at the company, he said he felt “a sense of obligation” to return to Disney and that his preference was to stay for his two-year contract.

“We’ve gotten a lot done very quickly, significant cost reductions and significant realignment of the company,” Iger said. “But dealing head-on with some of our biggest challenges.”

The article points out that the appearance in February came shortly after Disney announced a sweeping restructuring that included thousands of layoffs and billions of dollars cut in spending.

The reorganization warded off a potential proxy fight with activist investor Nelson Peltz.

The article adds that Disney reorganized into three segments: Disney Entertainment, which includes most of its streaming and media operations; an ESPN division; and a parks, experiences and product unit.

More evasive action

The article points out that these were some of Iger’s most significant actions in the months after his return. Disney revealed it would cut $5.5 billion in costs, consisting of $3 billion from content, excluding sports, and the remaining amount from non-content costs. The company earmarked 7 000 layoffs.

In addition to looking for his next successor, Iger has been tasked with bringing Disney’s streaming business to profitability. In the last year, media executives across all companies have focused on how to make streaming profitable, particularly after streaming behemoth Netflix lost subscribers early last year and since instituted ad-supported streaming and a crackdown on password sharing to drive revenue.

While the company posted revenue and profit in line with Wall Street estimates last quarter, it saw a loss of 4 million subscribers at its flagship streamer, Disney+.

Those subscriber losses were offset by price increases, which Iger said in May weren’t to blame for the lower numbers. Instead, he said it showed room for further increases when it comes to streaming and pushing customers toward the ad-supported tier, with the aim of reaching profitability.

In an effort to bulk up Disney+ and attract more subscribers to its cheaper, ad-supported tier — which it launched last year — the company announced last quarter it would add Hulu content to Disney+.

In May, Iger attributed the move toward a one-app location for both Disney+ and Hulu content to the increased advertising potential of a combined platform.

Disney has been weighing whether it should buy all of Hulu, as it owns 66% and Comcast owns the rest. It’s likely Comcast will sell its Hulu stake to Disney at the beginning of 2024, CNBC previously reported.

Will this trend filter into South Africa?

The announcement that Disney will be moving out of linear television comes at a time when two of South Africa’s major television providers, Multichoice and the South African Broadcasting Corporation (SABC), are facing their own challenges.

Digital distribution on mobile and fixed platforms through a streaming portal is a significant game changer and is disrupting companies in a unique way. By moving content to a digital channel, which is developed and owned by the company, Disney and CNN will be able to have greater control of the delivery of their content and the profits that come from the consumption of this content.

Further, provided that Disney and CNN follow the same delivery model as Netflix (where consumers can consume content as and when they feel like it and build curated content lists), they will be embracing a citizen-centric model of product delivery.

The free-to-view platforms have been forced to move to Digital Terrestrial Television with the spectrum dividend accruing to the state. Part of this needs to be reinvested in positioning the SABC into the new digital space and DTT is only a small linear part of it. The platform can provide content on demand, but it is locked into a decoder. The footprint contraction is problematic, and the audience loss is significant. Those audiences will easily move to Satellite services providers.

The decoders as the start of a licensed distribution model for streaming content across multiple platforms.

Like Disney, the SABC has archives of unique content; like Disney, it is both unique and timeless. The language and cultural impact of the historic reservoir of our stories can be repurposed through citizen access to archives at a low cost and generating content for the SABC in all of South Africa’s diversity.

An exciting era of televised content awaits; however, it means abandoning linear television and adopting a bold and aggressive positioning by the Public Broadcaster. This would mean a complete restructuring of the organisation centred around content, archives, citizen’s needs and revenue models.

Radio needs its own direction. News needs to be ubiquitous. Much of the current SABC is obsolete and needs to be repurposed. There is no avoiding a major and comprehensive restructuring of almost every element of the SABC. This must be led by proper research; strategic choices will be hard and public participation will be necessary, including a new public broadcasting licencing regimen. The citizens need to own their public broadcaster for all that it really does for them.

Robin Nicholson is the Director of Corporate-911 and is a Senior Business Rescue Practitioner.