Disney Flips The Switch On Disney+, Formally Entering Streaming Derby; Scattered Glitches On East Coast – Update

Dade Hayes and Dominic Patten

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UPDATED with user reports of technical issues. The moment of truth has finally arrived for Disney’s long-awaited, high-stakes entry into the streaming race, Disney+.

The $7-a-month subscription service went live in the U.S., Canada and the Netherlands at midnight PT as Monday became Tuesday. With a menu of film and TV titles from Marvel, Pixar, Star Wars and National Geographic, Disney+ joins Apple TV+, which launched November 1, and two upcoming services from WarnerMedia and NBCUniversal as the stiffest challenges yet to Netflix.

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There were scattered reports of technical problems in the initial hours, with some users taking to Twitter to complain about issues with logging in and streaming. According to the website DownDetector, the East Coast of the U.S. was the site of most of the glitches, which spiked between 7AM and 8AM ET, then declined, and then ticked up again.

Few expect any of the new streaming players to dislodge the dominant digital brands right away, but Disney’s push symbolizes the extraordinary and pricey efforts by traditional media giants to voluntarily disrupt themselves. Instead of licensing content to Netflix, Amazon and Hulu and continuing to rely on distribution fees for their cable networks, Disney prizes direct consumer relationships without intermediaries. In the digital era, that can reap valuable data and, in success, higher profit margins.

At a media presentation last week on the Disney lot in Burbank, CEO Bob Iger emphasized the intensity and speed of the company’s attack on streaming. It essentially has been a two-year sprint, he said, reversing a previous strategic course and highlighted by the acquisition of BAMtech and the $71.3 billion deal for most of 21st Century Fox. Fortified with that ammunition, Disney laid out plans to spend $1 billion on content in the first year, growing to $2.5 billion by 2024. Along with that, operating income is projected to take a $500 million hit in fiscal 2020 as licensing revenue takes a dive. Still, Iger and his team believe the time has come for Disney to step into the arena.

“It’s not only the company’s No. 1 priority but one of the biggest missions we have taken on, certainly during my [45-year] tenure,” he said. “We really didn’t begin in earnest until the summer of 2017, when we made the decision to go into the direct-to-consumer business.”

Although the decision was made to move quickly, competing with Netflix on volume was never the goal. Yet the company also knew fans would not be likely to embrace shows and spinoff features that felt hastily thrown together. “It’s not like you snap your fingers and end up with a Star Wars series,” Iger said about the considered pace of the ramp-up.

“We made a major pivot with the company,” said Kevin Mayer, head of Disney’s Direct-to-Consumer and International unit. “We think vertically integrating into that part of the value chain where we’re a retailer provides us with the best long-term growth and value for shareholders. We made a very careful assessment of that. … This is the choice we’ve made.”

Mayer, an M.I.T.- and Harvard-educated veteran of Disney’s corporate strategy and business development team, has steered the streaming drive and is considered a potential successor to Iger upon Iger’s retirement in 2021.

Succession talk wasn’t on the menu when the executive team (minus Iger) repeated their Burbank presentation at a cozy Dolby screening room in Midtown Manhattan. Asked about recent comments from Netflix CEO Reed Hastings that suggested he will be a Disney+ subscriber and considers it the biggest challenger his company faces, Mayer said the feeling is mutual. “We admire them greatly,” he said. “They created this market that we’re now participating in.”

Mayer was joined onstage by Ricky Strauss, president of content and marketing for Disney+, as well as Michael Paull, president of Disney Streaming Services, and Agnes Chu, SVP Content for Disney+. They demonstrated the service, delivered prepared remarks and fielded questions from reporters.

The version of Disney+ that is now live is certain to evolve over time. For one thing, it will become more global, a key aspect of ensuring Disney reaches its own goal of 60 million-90 million total subscribers by 2024. The UK and Western Europe will get Disney+ next March, with dozens of countries soon to follow.

Technically, too, its look and feel is built to evolve. Mayer said several aspects of the platform were tweaked as a result of a beta test earlier this year in the Netherlands. “There are always technical glitches and you can always improve the technical performance of any service like this,” Mayer said. Along with fine-tuning the user experience, the Netherlands beta enabled Disney to “confirm the four-quadrant appeal of the content,” allaying internal concerns that it would be seen as a kids-and-family platform.

Mayer repeatedly stressed the value for the subscription price. Each account, he emphasized, will allow four concurrent streams and unlimited downloads, and select titles will be delivered in 4K HDR, including the first eight Star Wars feature films in a non-theatrical first. Mayer described the offering as “quite consumer-friendly,” and “quite a value.”

One distinguishing trait of Disney+ will strike many traditional media loyalists as reassuringly familiar, but it’s also one that is at odds with how Netflix and other companies approach streaming. Instead of binge-optimized, all-at-once releases, Disney will debut new programming each Friday (making an exception this week to the once-a-week plan). “That way, we will build our audience,” Strauss said. “Especially on the brand-new originals. They’re created in a way where, if you’re interested in the show, which we hope and believe people will be, that they will want to continue watching every Friday. There will be no binge-ing. There’s no binge-ing strategy at launch, but who’s to say if we move forward and more content comes on the platform.”

The presence of Disney+, along with Disney’s recent move to gain control of Hulu, gives it two new platforms for programming. Last week, in announcing its quarterly earnings, the company said FX shows would have Hulu as their exclusive streaming home. The Cate Blanchett-starring Mrs. America is one of four shows to shift from the linear network to Hulu debuts.

As to how the launch of DIsney+ will affect relationships with MVPDs, Mayer said the company is incorporating it into comprehensive distribution negotiations. Dish Network chairman Charlie Ergen made the argument last week that companies like Disney are losing leverage to pay-TV operators by shifting so much content into direct-to-consumer streaming. Cable providers like Comcast and Charter, who are doing increasingly brisk business selling broadband to customers, could potentially integrate Disney+ into their systems, as they currently do with Netflix, Amazon and others. At launch, though, Disney+ won’t have those integrations, but will have availability across partner platforms like Roku, Amazon Fire and Samsung smart TVs.

“You will see distribution agreements take hold over time,” Mayer said. “They take some time to negotiate … but we are pursuing it.”

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