[COLUMN] Has Disney Given Up on Streaming? | by Darren Mooney (Patreon)

As has been well documented, the streaming wars are over.

The victors are quite apparent. Netflix has pulled so far ahead of its competitors in the studio system that it is now able to position itself as a caretaker of Hollywood’s theatrical heritage, staging anniversary screenings of classics like Blazing Saddles, Chinatown, and The Conversation in New York and Los Angeles. Streaming companies like Apple and Amazon likely have deep enough pockets to stay in the race, even if there are signs that they are looking to fortify their revenue streams.

However, what happens to everybody else? With the notable exception of Sony Pictures, which wisely opted not to launch its own streaming service and instead became “the biggest arms dealer on the battlefield”, the other major studios invested heavily in the race. While the global pandemic provided an early boost to these efforts – a large audience trapped at home with disposable income – the past year has seen these studios face the consequences of the choice to go all-in on streaming.

It was a busy and bloody December. Both Universal and Lionsgate announced that they were shutting down their streaming service in the United Kingdom. In the United States, Paramount announced the shuttering of several of its streaming apps, including Comedy Central, MTV, Paramount Network and Nickelodeon, and consolidated Showtime into Paramount+. There are rumors that Paramount+ might also be looking to merge into a single service with Warner Bros.’ Max.

However, Disney exists somewhere between the winners and the losers. In terms of subscriber numbers, Disney+ far outclasses its nearest studio rival with 150 million subscribers to Max’s 95 million. However, it is significantly behind the “over 200 million” Amazon Prime customers with access to Prime Video and the 247 million subscribers to Netflix. Depending on the measuring stick, Disney is either far ahead or far behind its core competitors.

Of course, Disney didn’t hold anything back in their pursuit of streaming glory. In August 2017, Bob Iger assured shareholders that streaming was “the top of our list in terms of the company’s strategic priorities.” In August 2018, Iger reiterated that the streaming service would be “the biggest priority of the company during calendar 2019.” In hindsight, that’s an interesting thing to say about a year in which Disney would make more money theatrically than any studio in the history of Hollywood.

Disney leveraged its library of intellectual property to boost its streaming service. Under Iger’s direction, there were no brands too sacred to go to streaming. Disney+ launched with The Mandalorian, the first live-action Star Wars television show. Following Avengers: Endgame, many of Marvel Studios’ biggest stars would migrate to streaming in titles like WandaVision, Loki, The Falcon and the Winter Soldier and Hawkeye. Pixar would even produce exclusive content for the service.

When the pandemic hit, under Iger’s successor Bob Chapek, Disney would make the choice to send franchise blockbusters to the service. Black Widow went to Disney+ as part of “Premier Access”, requiring subscribers to pay a special one-time fee. However, other brands weren’t so protected. Rather than waiting for a theatrical release when cinemas reopened, Pixar films like Soul, Luca, and Turning Red premiered on the service free to subscribers. Nothing was held back.

This branded content came at a price. Even before the pandemic hit, leading to a spike in production costs, it was reported that Disney was budgeting its Marvel television shows at around $25 million per episode. The first season of the upcoming Star Wars spin-off Skeleton Crew cost “nearly $136 million.” The revenue generated from subscribers can’t make up for these costs.  By August 2023, the company’s streaming losses since the launch of Disney+ were “more than $11 billion.”

There were arguably other costs, less quantifiable. After the pandemic, Disney’s long-reliable brands seemed to flounder at the box office. Given that Spider-Man: No Way Home was produced by Sony, no Disney Marvel film has grossed more than $1 billion since the premiere of WandaVision. The studio has also struggled in transitioning Pixar back to a theatrical brand, with both Lightyear and Elemental initially underperforming.

It is obviously impossible to say with any real certainty why a given film does or doesn’t perform at the box office. There is a broader argument to be had about whether the target audience for many of Disney’s recent failed blockbusters simply “aged out” during the pandemic gap. However, there is also a sense that once a studio trains an audience to expect to receive something for “free”, even within a monthly subscription, it’s hard to convince them that it’s worth paying for.

Disney has been forced to make tough cuts to cover its streaming losses. In May 2023, the studio cut 7,000 jobs to make up the shortfall. This month, it was reported that Pixar would undergo significant lay-offs in the year ahead, although the precise number was yet to be determined. However, the past few months have also seen something of a shift in the company’s approach to streaming. Bob Iger, who has returned to the role of CEO, seems to be triaging the studio’s streaming.

There have been a number of recent indications that, while Disney is unlikely to completely abandon the battlefield, they will be cutting their losses and scaling back. In recent months, there has been a clear pivot back to theatrical for the brands most affected by streaming. The Mandalorian and Grogu is obviously an attempt to revive the theatrical Star Wars brand after a half-decade on streaming, by transiting The Mandalorian to the big screen.

The studio has also announced plans to send the three Pixar films that went directly to Disney+ back to theatres. This decision is likely an attempt to compensate for a content drought caused by last year’s disruptive writers’ and actors’ strikes, but it does signal that Disney sees Pixar as a theatrical brand. However, the initial results are less than encouraging. Soul earned just $125,000 in its re-release. This makes sense, given that subscribers can just watch it at home.

Even outside of trying to restore the theatrical luster of established brands, Disney is also aggressively trying to mitigate its streaming losses. In June 2023, it was revealed that Disney had taken a $1.5 billion write-down on titles that it had removed from its streaming services. This presumably includes the company’s deletion of Willow, a series which cost the studio $105 million, from the service less than a year after it premiered.

Reports suggest that Disney is going to be a lot more cautious about investing in streaming content going forward. While She-Hulk head writer Jessica Gao boasted that she had “an idea of where [she] would want it to go for another season”, star Tatiana Maslany recently stated that there was unlikely to be a second season due to the fact that the show “blew [its] budget.” Once again, this was a show that cost $25 million per episode.

There has also been a palpable shift in how Disney is handling the streaming material that it already has, perhaps indicating how quickly the prestige around the company’s streaming output has deteriorated. While the first season of What If…? enjoyed a high-profile weekly release, the second season released new episodes daily during the holiday season. This was a strange way to treat one of the company’s flagship brands. It felt like the show was being quietly “burnt off.”

While the first season premiere ranked seventh on the Neilsen streaming charts, the first three episodes of the second season collectively failed to make a dent on the same chart in a less competitive slot. There is a chicken-and-the-egg logic to this. It’s hard to know if audiences didn’t watch the second season of What If…? because Marvel didn’t promote it, or whether Marvel didn’t promote it because they knew audiences weren’t interested. Either way, this was damage control.

Then there is Echo, the most recent Marvel streaming series. Echo was initially rumored as eight episodes, announced as six and then cut down to five. It was also released simultaneously, the only live-action Marvel show not to get the weekly release model. The only other major Disney+ streaming show to get that binge release model was American Born Chinese, a series that did not get a second season. This is not how Disney treats a show that is important to it.

Releasing all the episodes of Echo at once gives the show a better chance of hitting the streaming charts, which are based on the total number of minutes watched. Moving the show out of its original Thanksgiving slot into January puts it in a less competitive space. The shorter season makes it more likely that binging viewers will finish the season, thus gaming the competition rate, an important streaming metric that would allow the company to frame the show as a success.

This all seems like mitigation. It’s the work of a studio trying desperately to recover from a grievous self-inflicted wound, waking up with a hangover to deal with the consequences of a long night of reckless abandon. Both the second season of What If…? and Echo were shows commissioned at the height of the streaming boom, when these studios were spending recklessly. Indeed, because animation takes so long, a third season of What If…? is still on the way, commissioned in July 2022.

Streaming is not going anywhere. The tech companies pushing it are too firmly established to let the business model die away. Similarly, Disney is not going to abandon streaming. It has invested too much money and ego in its pursuit of the streaming gold rush. However, it does feel like the past few months have seen Disney redrawing the boundaries of its streaming ambitions, trying to scale back from its initial all-in bet on the model. It’s now minimizing cost, risk and embarrassment.

Looking at the company’s recent decisions, Disney is no longer fighting to win the streaming war. It’s just trying not to lose too badly.