The main focus for Walt Disney Co. as it prepares for the launch of its upcoming streaming service Disney+ will be achieving platform functionality and personalization on par with market leader Netflix Inc., analysts said.
Disney CEO Bob Iger said in November 2018 that the service, which will launch late in 2019 in the U.S., will feature original and library content housed under five headings: Disney, Pixar, Marvel, Star Wars and National Geographic. More recently Iger said that the Disney+ service will eventually house the entire Disney motion picture library.
"What we're basically trying to do here is invest in our future," Iger told analysts in February on an earnings call. "The investments that we're making in both the technology side and in creating incremental content are all designed so that, long term, this business will become an important part of Disney's bottom line and long-term strategy."
'Perfect testing ground'
The company is reportedly considering testing the direct-to-consumer service in the Netherlands ahead of its launch in the U.S.
The country is a "perfect testing ground," according to Tony Gunnarsson, principal analyst at Ovum, specializing in pay TV and streaming video. It has high broadband penetration and a relatively affluent population, he noted.
It also has a proven appetite for foreign-language services and content, said Ampere Research Director Richard Cooper, who focuses on media and the home entertainment business.
Perhaps most importantly, its location and relatively small size reduces the risk of a significant amount of negative feedback on the service making its way to the U.S., Gunnarsson and Cooper both said.
Testing user experience
Similar tests of streaming services have focused on platform functionality and personalization, Gunnarson noted. Netflix's algorithm, which encourages usage by recommending shows based on user behavior, is the most sophisticated in the market, according to the analysts.
Disney will want to achieve "parity with Netflix" in this respect, Gunnarsson said.
On the February call with analysts, Iger acknowledged how important usability will be for the success of Disney+.
"Presented with an overabundance of choice, consumers look to brands they know to sort through the options and find what they actually want," said Iger. "The DTC space is no different in that regard, and we're confident that our iconic brands and franchises will allow us to effectively break through the competitive clutter and connect with consumers. We'll also use our brands to help subscribers quickly navigate the content on Disney+, creating an efficient interface that enhances their experience and their affinity for the service."
ESPN+ on various devices
To refine the functionality of the new streaming service, Disney is using its experience with its existing ESPN+ platform. Disney is utilizing the BAMTech technology it acquired in 2017 to help make the new platform more user-specific. BAMTech provides direct-to-consumer streaming technology and marketing services, data analytics and commerce management.
On a recent call with analysts, Iger highlighted that the ESPN+ platform proved to be stable during peak livestreaming consumption and "easily handled the volume of more than 0.5 million people signing up in a single 24-hour period." The service, which launched in April 2018, now counts more than 2 million paid subscribers.
"We also learned ... that ESPN's primary platforms are fantastic marketing tools for the direct-to-consumer service, and you can obviously expect that we will use Disney's strong marketing platforms for the Disney+ service," Iger said.
Coexisting with Netflix, others
Recent viewing patterns suggest there may be plenty of room for new entrants in the streaming video space.
According to data from an online consumer survey conducted by Kagan in the third quarter of 2018, almost half of the respondents in the U.S. indicated they used more than one online subscription video service. Kagan is a media research division within S&P Global Market Intelligence.
In 2018, the global average, meanwhile, was 2.25 streaming services per user, Gunnarsson said. Disney+ is expected to launch globally in mid-2020.
Disney+ should, at least initially, also have a somewhat different business model from Netflix, as it continues to partner with cable companies to license content, he said.
Disney, however, may put pressure on streaming services that are not as established, Cooper said.
"Disney is a marketing master," said Cooper. "We would expect in the first five years for Disney to be taking a lead on the smaller services."