If one asks the question "which is most valuable media company?", what would be your answer? With blockbuster franchises like Disney, Starwars, Marvel, Pixar, all Disneyworld theme parks, ABC, ESPN and many other valuable assets, answer should be obvious that Disney is most valuable media company in the world. And that answer would be correct for now! In 2019 most likely the answer is going to change to Netflix as most valuable media company. What a shakeup in span of just one decade. Ten years back, Netflix was struggling to survive and had to be rescued by Carl Ichan (who made billions on his investment) and now we are discussing Netflix becoming most valuable media company surpassing Disney. However this should not be surprise to students of how economy and markets progress. Old gets replaced by new. We had seen it in so many industries time and again.
Let's see how these two companies stack up in 2018:
World is changing to "Everything-as-a-service" model. This is not a new idea since many services/products have been using this mode for multiple decades (e.g. club membership, Costco membership, broadband connection, mobile phone subscriptions). The model was adopted by companies like Netflix, Amazon (with its PRIME service), Spotify and many others right from their inception. The old companies who were slow to realize paid their price. Blockbuster went bust since their business model was based on late fees. No one buys music album CDs anymore. Do you remember buying DVD recently? Media companies have been slow to adopt to this model as they wanted to preserve their older models. But it's just matter of time before they are forced to make this change. The companies which make this change quickly and simplify their model would survive next decade.
So what should companies like Disney do? Here is one idea.
Let's see how these two companies stack up in 2018:
- Revenues: Netflix: $13B; Disney: $56B
- Market Cap: Netflix: $141B, Disney: $155B
- Stock gains over last 5 years: Netflix:1000%; Disney: 60%. At this rate, I won't be surprised if this change to most valuable company happens in 2018!
World is changing to "Everything-as-a-service" model. This is not a new idea since many services/products have been using this mode for multiple decades (e.g. club membership, Costco membership, broadband connection, mobile phone subscriptions). The model was adopted by companies like Netflix, Amazon (with its PRIME service), Spotify and many others right from their inception. The old companies who were slow to realize paid their price. Blockbuster went bust since their business model was based on late fees. No one buys music album CDs anymore. Do you remember buying DVD recently? Media companies have been slow to adopt to this model as they wanted to preserve their older models. But it's just matter of time before they are forced to make this change. The companies which make this change quickly and simplify their model would survive next decade.
So what should companies like Disney do? Here is one idea.
- Launch "Disney-As-a-Service"
- Package all benefits like
- Netflix kind streaming channel with all Disney/Pixar/Starwars/Marvel assets plus ABC/ESPN live channels
- Discounts to theme parks, resorts, cruises and priority access to rides
- Discounts to branded merchandise
- Invitations to member only events
- Make the service so compelling (similar to Amazon Prime or Netflix) that customers would be foolish to not sign up and keep renewing it
- Keep the price structure simple that even a child can decide which one to sign up for (e.g $10, $20, $25 per month with discount on annual bundles)
- Create original, diversified and localized content (Hindi, Chinese, Spanish and so on) by partnering with local producers and directors.
- Take risks on creating content - every movie/show does not have to be blockbuster like Black Panther
- And invest in technology - user interface and delivery of content should be able to match or excel that of Netflix
- And make all of it happen before 2020!
Given initial steps taken by Disney CEO Bob Iger, Disney has started making some progress. If he is really able to transform Disney into 21st century company before 2020, it can reclaim the title of "Most Valuable Media Company". From investing point of view, I would recommend investing in both Netflix and Disney since there would be more than one winners. As an extreme case, Apple should buy Disney (with more than $200 Billion cash-pile) and create "Apple-As-a-Service".
