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Yesterday, Michael Mulvihill—President, Insights and Analytics at Fox Corporation—tweeted a breakthrough for Tubi in Nielsen’s The Gauge: “Tubi has outrated Disney+ on a total day basis in each of the last three weeks, per Nielsen.” Tubi was already around 0.1% behind Disney+ in the April 2024 Gauge released two weeks ago, and up 0.6% year-over-year overall.
I last wrote about the competitive dynamic in February’s “‘Taylor Swift: The Eras Tour’ on Disney+ vs. Unsentimental Consumers”, and how “Gen Z and millenials—crucial audience segments for growth—seem unsentimental for what Disney used to be.” Back then, Tubi also issued a press release about its redesign, highlighting that Tubi has seen growth “amongst young, diverse and female viewers with 60% growth in the 18-34 demographic, 55% growth in Multicultural demos including Latine, African American and LGBT audiences and 63% growth in female audiences, year over year.” It also shared that 63% percent of Tubi streamers are cord cutters and cord nevers, and 30% are unreachable on other major free AVODs
The message was clear: The next generation of consumers value the user experience (UX) as much as the content, enough to prefer free services to paid services with historically popular IP. This is not a new dynamic: YouTube has been dominating TV consumption in the U.S. The difference is that Disney+ has long been considered the most viable competitor to Netflix because of its storytelling expertise and the deep content libraries of studios, or “Storytelling Moat”. Now, Netflix is watched on U.S. TVs 4x more than Disney+ is, and Disney+ is competing neck-and-neck with a free service.
This development echoes Sony Motion Pictures Group chairman Tom Rothman’s take that “we’re exiting the era of the tyranny of IP”. Both in theaters and in streaming, the economics of production and consumer pricing for “big IP” has made movies too expensive for ticket buyers, while streaming has made it too easy for subscribers to consume cheaply. To restart optimally monetizing consumers with “big IP”, and get out of its rut competing with Tubi, Disney must own theatrical distribution, too.
Key Takeaway
Owning theatrical distributors seems to be the best available solution for Disney, NBCUniversal and Sony to solve the increasingly expensive and convoluted economics of "big IP".
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Consumer Price Sensitivity
The competitive dynamic between Disney+ and Tubi mirrors the generational shifts in media consumption highlighted by Rothman: “The movie business has gone from number one to number five, in terms of what a young person might do on a weekend.” Past generations would say “let’s go to the movies this weekend” whereas current generations ask “what do you want to do this weekend, with our limited resources?”
He added:
“There’s a value proposition in pricing [movies] for two constituencies that are important to us. Kids are trying to make rent, they don’t have a lot of disposable income. And the second very significant pricing-sensitive segment is the family audience. It’s too dang expensive to take your whole family to the movies right now, even if the kids get in half price or whatever.”
Whereas in streaming, young consumers “all have their streaming services, which because you pay by the month, it feels like it’s free.” He did not add that Tubi, Pluto TV and other free ad-supported TV services (FASTs) *are* free.
So, the problem with the "big IP" model is that it no longer maps to consumer economics. Why spend $20 when you can wait? Or, with Premium Video on Demand, why spend $48 for four tickets (and $68 more for concessions for four people ($17 per person) when the entire family can pay $30 to watch in the living room?
The disconnect for "big IP" in streaming lies in churn: After consuming one piece of “big IP” from a streaming service, why continue paying a monthly fee?
Chapek Revisited
One answer may lie in the former Disney CEO Bob Chapek’s now-discarded strategy for streaming-era consumers: A subscription fee needs to deliver more than content because they can increasingly find compelling content elsewhere, like on Tubi, for free. He envisioned a “Disney Prime”-type offering that could offer discounts or special perks to encourage customers to spend more on its streaming services, theme parks, resorts and merchandise.
To date, the best model for monetizing “big IP” is an ecosystem with theme parks like Disney (Revenues of $32.5 billion in FY 2023 and operating income of $9 billion) or Comcast’s NBCUniversal (Revenues of $8.9 billion and EBITDA of $3.3 billion in 2023). Sony has the second-best model as an arms dealer. It produces “extremely, extremely valuable” content that results in “without a doubt, the most favorable and lucrative ancillary deals in the world.”
Neither Sony, Disney nor NBCUniversal have built a single consumer touchpoint across their respective ecosystems. Unlike Disney or NBCUniversal, Sony is not structured to set up a single consumer relationship. Its interactive division has 118 monthly active users of PlayStation consoles, but those are separate from Crunchyroll subscribers (Sony Pictures Entertainment) and Sony Electronics (900 million devices worldwide).
Chapek was trying to evolve Disney’s advantage with consumers by helping them to stretch their dollar across more Disney offerings. Not only because they needed it, but also because competitors like Netflix and Amazon were doing so, too. Adding theatrical and making it a free or low-priced perk would go a long way to driving more attendance at the theaters. For example, Amazon Prime offers free tickets to members for exclusive advance screenings of Amazon movies and series. The deal also includes concessions and “photo moments”.
To date, neither Disney, Sony nor NBCUniversal has done so because the 1948 Paramount Decrees prohibited studios from owning theatrical distributors. Those decrees ended in 2022.
The Theatrical Roadblock
In this light, Rothman’s interview implies that theaters are key reason why the “tyranny of big IP” is coming to an end. First, for Disney and NBCUniversal, theaters are consumer touchpoints that price "big IP" independent of the existing relationships consumers have with each company via streaming services and theme parks.
Second, because for Sony—which does not have a single touchpoint with consumers—exhibitors are pricing access to “big IP” independent of Sony’s business objectives of scale. In both instances, the pricing is independent of the consumer’s increasingly multifaceted relationship with the “big IP”.
So, owning theatrical distributors seems to be the best available solution for Disney, NBCUniversal and Sony to solve the increasingly expensive and convoluted economics of "big IP". Consumers need them to help stretch the dollar of their spend. Without theatrical, free services like Tubi become increasingly compelling to expensive IP.