In this blog, we frequently talk about the subscription economy and growth/traction of streaming services. That leads me to this…
Dear Mickey / Disney,
It’s time to take a big step. It’s time to acquire Netflix and Roblox, and if you have to, sell Hulu.
I’m suggesting that there is a massive opportunity for Disney to establish an even bigger global footprint, which comes just as streaming platforms are being forced to make some significant changes.
While Disney hoped to achieve better earnings for the second quarter of 2022, Disney+ surpassed expectations. The company reported adjusted revenues of $19.25 billion, lower than the expected $20 billion. On the other hand, Disney+ added a whopping 7.9 million subscribers to bring its total to 137.7 million, surpassing analyst estimates by around 2.7 million subscribers.
Before we can explore the benefits of such an acquisition, we first must talk about Disney’s potential baggage holding the company back: Hulu.
Is Hulu Baggage for Disney?
An increasing number of investors are calling on Disney to drop Hulu and make a new acquisition, and the argument for such a scenario is strong. Hulu is struggling to keep up with its fast-growing competitors, and it is looking like the company could be hitting a plateau. With a reported 45.6 million subscribers in the second-quarter report, Hulu has only managed to grow its subscriber base by about 1.5x. Respectable but small in comparison to Disney+ growing by more than 5x and ESPN+ by more than 3x.
Hulu has two key issues: .
The platform has a very limited global footprint. Even though some of Hulu’s content is offered on Starz, which is more widely available, Hulu is largely confined to the U.S.
While Hulu has had success with original series like The Handmaid’s Tale, becoming the first streaming service to win an Emmy Award for Outstanding Drama Series in 2017, the company has not established itself among audiences as a top choice for original programming. This limits its differentiation as consumers continue to get more selective with their streaming subscription dollars.
Hulu’s Problems = Netflix’s Strengths
Netflix has a global footprint and abundant original content. Despite many challenges at Netflix over the last few months, such as a loss in subscribers for the first time in nearly 20 years, the company has been unwavering in its commitment to achieving a strong global presence. With an established presence in 190 countries, the Netflix intro has become truly universal. (Tah dah!)
Ask anyone what their favorite streaming series is, and there’s a good chance you will hear something along the lines of Squid Game, Bridgerton, Money Heist, Ozark, The Witcher, or the highly anticipated Stranger Things, whose recent season 4 broke Netflix’s record for biggest-ever premiere weekend of an English-language series with 287 hours viewed the week of May 23-30. What do all of these have in common? They are all Netflix originals. Remember Tiger King? Netflix original.
According to 2021 Morgan Stanley Research, 39% of respondents indicated that Netflix was the premium/OTT service with the best original programming. And that is huge given the incredible amount of competition on the market. The second choice was Amazon at just 12%.
It’s clear that Netflix is the leader in original content, and the company has even grander plans. It is expected that nearly half (46.5%) of the company’s projected $18.92 billion budget will go toward original programming in four years, compared with 37.8% in 2020. At the same time, content acquisition costs will decrease from 62.2% in 2020 to 53.5% in 2025.
All of this makes the two companies a perfect match, and a Disney acquisition of Netflix would turn the combined venture into an unstoppable force in the realm of original programming.
Entertainment for Kids
While Netflix has a lot of great options for original content, most parents would not consider it their first choice for a streaming service that caters to kids. But Disney definitely owns that hill as a leader in entertainment for kids, providing for one of the few areas where Netflix is limited.
While there has been an industry focus on streaming content geared toward teenagers or young adults, there is also a fierce competition for content appealing to younger consumers. Disney’s most acclaimed animated series for children, Doc McStuffins, won a 2014 Peabody Award. Series creator Chris Nee decided to take her creativity to another platform after cutting a deal with Netflix despite having a “great situation” at Disney. Nee went with Netflix so that she could have more “creative freedom.” Situations like these show just how mutually beneficial a Disney acquisition of Netflix could be. It would eliminate competition while also bringing together the best creative talent in the industry.
Roblox as Another Option
This brings us to a potential second option for Disney: a Roblox acquisition. Roblox is an online platform and storefront where a community of players can play games made by other developers. Instead of a standalone game, Roblox is a type of platform where all of its included games are made by its users. To date, users have published over 20 million games, and over half of all U.S. kids under age 16 played on Roblox in 2020. The platform is showing incredible growth, with over 54.1 million daily active users and community developers pulling in over $328 million. Roblox’s market cap is $17.75 billion at the time of the publishing of this article.
A Roblox acquisition would be far cheaper than Netflix while also bringing some of the same potential regarding entertainment for kids, which is why talks are growing around the subject. Roblox would not provide the same streaming potential as Netflix, but it would help Disney get involved in interactive media and video games. And since Roblox’s audience primarily consists of children, it makes perfect sense for Disney.
Disney has made previous ventures into mobile gaming with little success, but Roblox would bring some much-needed expertise to the table this time around. With that said, Roblox would be a far smaller acquisition than Netflix, and it would take a long time before Disney noticed any significant impact.
Creating Tomorrow’s Media Powerhouse
With an acquisition of Netflix, Disney would secure its position as the future powerhouse in streaming. With the market undergoing many changes and disruptions, especially due to shifting consumer behavior coming out of the pandemic, it’s time to make some big shifts.
Hulu is showing signs that it can’t grow. The platform’s limited global footprint and lack of unique original content seem to be impossible to overcome in this highly competitive space. On the other hand, Netflix excels in these areas and would create all kinds of brand new opportunities for Disney. The acquisition would be highly prosperous for both parties, and if Netflix proves to be too big of an undertaking for Disney, the company should look towards its next best option in Roblox.
And while I have your attention, Mickey, my 8-year-old nephew is interested in early consideration for your internship program! He’s a Roblox fanatic, a Buzz Lightyear expert, and a junior entrepreneur — what’s not to love?
Best,
Daniel
