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Netflix Was Only the Start: Disney Streaming Service Shakes an Industry


LOS ANGELES — He had a toe in the water.

In 2015, with Netflix growing at a scorching rate, Robert A. Iger, Disney’s chief executive, quietly tested a streaming app in Britain called DisneyLife. The next year he started talking more openly about building a major streaming platform — a risky proposition for a company with a vast traditional TV business — and paid $1 billion for a stake in BamTech, a little-known tech company that had helped HBO build its app.

But it was not until 2017 that Mr. Iger decided to pinch his nose and step off the diving board.

For two days that June, during a board of directors retreat at the company’s luxury BoardWalk Inn at Walt Disney World, Disney executives gave presentations on how digital technology was disrupting their divisions. The most alarming report came from Media Networks, a $24 billion unit anchored by ESPN and the Disney Channel. Cord-cutting was accelerating at a much faster rate than anticipated. Live viewing for children’s programming was in a free fall.

Less than two months later, Mr. Iger announced a radical plan: The Walt Disney Company would shift its priority to streaming by creating ESPN Plus, a platform for sports, and Disney Plus, which would include blockbusters from the Marvel, Pixar and “Star Wars” universes, as well as decades of Disney classics.

“We were now hastening the disruption of our own business,” Mr. Iger wrote of the move in his recently published memoir, “The Ride of a Lifetime.” The chapter title: “If You Don’t Innovate, You Die.”

Disney Plus arrives on Tuesday, every trumpet in the Magic Kingdom blowing on its behalf. Streaming has been on the rise for a decade, and last year, for the first time, the number of streaming subscribers around the world (613 million) surpassed the number of cable subscribers (556 million), according to the Motion Picture Association of America. But the debut of Disney Plus, with its treasure trove of franchises and $7 monthly fee, is the industry’s equivalent of Thor’s slamming down his magic hammer: a quake that changes everything.

To defend its turf, Netflix is spending billions to produce Disney-style family entertainment. WarnerMedia, owned by AT&T, copied the Disney playbook last month when it staged an elaborate presentation to disclose details about its own online video service, HBO Max, set to arrive in May at $15 a month. Comcast, the owner of NBCUniversal, with 21 million cable customers in the United States, had been hanging back. But five months after Disney unveiled Disney Plus, Comcast announced that next April it would roll out Peacock, a streaming service with 15,000 hours of programming.

The last once-in-a-generation shift in entertainment took place in the 1980s, when cable broke the dominance of network television. MTV went live in 1981 with a shot of an astronaut planting a flag on the moon: We claim this space as the future.

The audience fractured in the decades that followed as the cable networks catered to subscribers who paid for what they watched. That put an end to the supersize audiences that tuned in when the broadcast networks were at their peaks — an estimated 106 million for the final episode of “M*A*S*H” in 1983; about 50 percent of all the TVs in America for the conclusion of the 1977 mini-series “Roots.”

The movie business also took a hit with the rise of cable. But when Paramount Pictures started to sputter, the studio’s corporate overlords at Viacom essentially shrugged. Who needed box-office receipts when the company’s cable properties — Nickelodeon, MTV, BET, VH1, CMT, Logo — were printing cash?

That was then.

Out: buying a costly bundle of channels, most of which you don’t watch, and dealing with the hassle of a technician’s coming to your house when it goes awry. In: cheap, easy-to-activate, easy-to-cancel, digitally delivered entertainment on demand.

Nowadays in Los Angeles, the executives, agents and producers involved in streaming are the ones with the swagger, leaving people in cable to experience the reversal of fortune that claimed the magazine business. What was once a land of corner lunch tables and infinite expense accounts has become a grinding realm of desk salads and panic over quarterly numbers.

Showrunners who made their names in traditional TV like Ryan Murphy (“American Horror Story”), Shonda Rhimes (“Grey’s Anatomy”) and the duo behind HBO’s “Game of Thrones” have decamped, lured to streaming by nine-figure deals and the excitement of being at the center of the action.

Without question, analysts say, the flood of new streaming services will cause more people to cancel traditional cable and satellite hookups. By 2009, about 10 million adults in the United States had dropped their pay-TV subscriptions, according to the research firm eMarketer. By the end of this year, that number is projected to be 46 million, according to eMarketer estimates.

Put another way, one in five adults in the United States will have cut the cord by 2020.

“It’s freaking ugly,” said Michael Nathanson, a founder of the MoffettNathanson research firm, summing up the view of the cable and satellite industry. “It’s worse than freaking ugly.”

Cable television remains a colossal business, of course. Even in decline, Disney’s cable portfolio generated $1.3 billion in profit in the most recent quarter. NBCUniversal had $959 million. Cable executives are not raising a white flag.

“I think there is actually a long, very robust future for cable as well,” said Frances Berwick, an NBCUniversal president who oversees Bravo, E! and Oxygen. “These businesses will coexist. It’s not like one is going to go away and everything goes into the other.”

Ms. Berwick said the cable industry had “comfort” on its side — familiar programs like “The Real Housewives” and channels with distinct identities. Not everyone likes the streaming experience, which turns the semi-passive act of channel surfing into more of an active hunt.

They “want to see the familiar and not to have to make a decision,” she said.

Yet look at how fast streaming services have expanded. Netflix, which started serving up movies and shows online 12 years ago, has grown into a giant, with 158 million subscribers worldwide. Amazon Prime Video is available to 100 million Amazon Prime members. Hulu has 28.5 million. Analysts expect Disney Plus to have at least eight million customers by the time it is seven weeks old and 76 million at the end of five years.

No lesser a force than Rupert Murdoch decided on a tactical retreat. Rather than slug it out with Disney and the tech companies muscling onto his turf, he hung a For Sale sign on most of his entertainment assets, including non-news cable channels like FX and the 20th Century Fox television and movie studio. Disney outgunned Comcast by paying $71.3 billion for the properties, with Mr. Iger contending that the purchase would supercharge Disney’s streaming plans.

Nearly $200 billion worth of media mergers came about in the last 18 months, all driven by the transition. AT&T spent $85.4 billion for what is now WarnerMedia so that it could create HBO Max. In August, Viacom and CBS announced a plan to merge to make it easier to sell their entertainment wares to the new players while adding bulk to their CBS All Access, Pluto TV and Showtime streaming services.

Cable providers point out that Hollywood companies face a steep learning curve. Companies like Disney will have to learn how to deal directly with viewers, the way cable companies have for decades — not an easy proposition, noted Pat Esser, the president of Cox Communications, the nation’s third-largest cable carrier.

“They’re about to enter a space where the consumer, with a click of a button, will decide to be your customer or not to be your customer,” he said.

Brian Roberts, the chief executive of Comcast, the parent company of NBCUniversal, said he had been getting ready for the shift to streaming since 1997, when he and other executives had dinner with Bill Gates.

“Bill says, ‘Someday you’ll have a bigger data business than a TV business,’” Mr. Roberts said. “We didn’t know what he was talking about, because the data business was zero at the time.”

He seemed unsentimental about the prospect that a way of watching TV was on the wane.

“Everybody wishes they could go back to the old days, but we don’t think like that,” Mr. Roberts said. “We don’t want to hold on to a business model just because that’s how things were done.”

Edmund Lee and John Koblin contributed reporting from New York.


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