Disney’S Pivot To Streaming Is A Sign Of Severe Covid Economic Crisis - Dispatch Weekly

October 28, 2020 - Reading time: 4 minutes

cThat means Disney will reduce its focus on its traditional go-to investments in television and film. Disney has announced plans to invest $1.5 billion in the streaming platform and the launch of the company’s first full-fledged video-on-demand service.

As the company is able to accelerate direct consumer business, it can support this growth strategy more effectively and increase shareholder value. But change will not be easy, especially if its fate is on a rollercoaster ride through 2020.

Disney’s strategic shift comes after activist investor Daniel Loeb called on the company to reinvest all planned dividend payments into its streaming service. The COVID-19 pandemic wiped out more than half of Disney’s direct consumer income in the first quarter of this year. Disney was the only clear winner, with the service gaining more than 60.5 million members in just ten months since it launched.

The stock market has welcomed the change in strategy and resource allocation, sending Disney shares up 6% since the announcement. We do this because we can deliver higher returns than just returning cash to shareholders.

A quick change

The move is remarkable from a corporate strategy perspective in two ways: First, the sheer speed of the pivot is unprecedented for a company of Disney’s size and age. This is important for the company as Disney has grown strongly in recent years in all sectors in which it operates. The theme parks and cruise lines business was also successful, growing a respectable 6% year-on-year and generating net income of $1.2 billion in the same period, compared with $0.5 billion a year ago.

Indeed, before the announcement, most stock market analysts had made peace with the notion that Disney would hardly change or bow and wait for the pandemic. 

Why would the company put all this money on the table when the pandemic was soon over?

The group has clearly decided that waiting is no longer an option, and the fact that Disney reinvented itself after the pandemic broke speaks volumes about its expectation of its duration.

Spillover effects

The second reason why this turnaround is remarkable is that it is likely to be far-reaching, and not limited to the streaming industry. Disney’s transformation does not bode well for the long-term viability of the film industry as a whole, or even for Disney itself. A better-funded Disney, which airs its highly anticipated first-day theatrical releases, also has a much better chance of getting back on its feet when the pandemic subsides. And Disney has already decided to release more of its blockbuster films, such as “Star Wars: The Force Awakens,” on streaming sites rather than in theaters.

Unlike Disney, most of these players are simply too specialized and have invested too heavily in their industries to take bold and timely steps themselves. Traditional cable and linear television companies are also under more pressure than they think Disney will grow faster because of the lack of competition in the streaming industry.

Disney’s urgency to change itself is a signal to business leaders around the world who have been waiting for the impact of COVID 19 to disappear and for their companies to return to their former glory. The writing on the wall is clear and it would not be surprising if at least some of them made a courageous decision to buy out the current situation. This includes changing their business models to make them more competitive in the streaming industry and boldly becoming obsolete.

As the chef Gusteau once said in the Disney film Ratatouille: “If you focus on what you have left behind, you will never see what lies ahead,” and today that line seems more relevant than ever.

DW Staff

David Lintott is the Editor-in-Chief, leading our team of talented freelance journalists. He specializes in covering culture, sport, and society. Originally from the decaying seaside town of Eastbourne, he attributes his insightful world-weariness to his roots in this unique setting.