It's been an eventful three days with both an(other) announced Disney reorg and Netflix's Q4 2021 earnings.
To support the ongoing expansion of The Walt Disney Company’s direct-to-consumer business around the world and fuel the expanding pipeline of local and regional content for its streaming services, the Company is creating a new hub for international content creation under the direction of Rebecca Campbell as Chairman, International Content and Operations, it was announced today by Bob Chapek, Chief Executive Officer, The Walt Disney Company. In addition, the Company is making several key executive appointments to its Disney Media & Entertainment Distribution (DMED) segment under the leadership of its Chairman, Kareem Daniel.
This Disney reorganization makes sense, as it creates a bit more certainty in the management structure for streaming. In particular, it creates a new role - President, Disney Streaming - for someone to oversee all streaming, specifically, which until this week Kareem Daniel had been doing as part of his larger portfolio of responsibilities for all of Disney.
But it also adds uncertainty: there is no current head of Disney+ at a time where Disney+ needs to grow. The question is whether this matters or is significant.
I think it is worth considering Paull's promotion and lack of a successor through the lens of the A/B/C/D market tests of UI and UX in different global regions:
Test A (U.S. only): Bundle of Disney+, Sports (ESPN+), and vMVPD (Hulu + Live) and/or adult audience content (Hulu)
Test B (Latin America): Bundle of Disney+ and Star+ (ESPN and adult audience content)
Test C (Europe, Canada, ANZ, Singapore): Disney+ app with Star Branded Tile (adult audience content)
Test D (India, Indonesia): Disney + Hotstar (Disney+, adult audience content, and sports)
A year after they first launched (and six months after Star+ launched), Paull seems positioned to make a decision on the future of these bundles. In that light, it makes perfect sense: to solve for growth, Disney needs to evaluate the data and then make some tough decisions about the best offerings for consumers.
Paull, who had been CEO & President of BAMTech when Disney acquired it, is an experienced DTC and streaming-savvy executive being positioned to make those calls. That seems very much in line with CEO Bob Chapek's Third Pillar of the consumer being "our North Star" (which I wrote about for Members last week in Chapek's "Three Pillars" for Disney's Future Faces Tough Trade-Offs In Sports Betting).
The move also seems to implicitly answer recent public and private criticisms of Daniel as not being either a content executive or a streaming executive overseeing streaming. Paull now effectively is the face of Disney streaming.
But, there are two red flags.
First, I previously wrote about the operational disconnects at Disney that surfaced in a September 2021 Wall Street Journal article, “How Disney and Scarlett Johansson Reached the Point of No Return”. A promotion of Paull without a successor objectively reads like a disconnect, even though it may not be given the above
Second, the reorg also feels slow in execution. It has been more than two years since Disney's Investor Day Presentation on its streaming business, and 16 months after its announced reorganization, but only now are we seeing an operational focus on international content.
Netflix proved international and local-language content could drive English-speaking audiences with Norsemen, Elite, and Casa de Papel long before December 2020. It was clear, then, that the economics of producing locally and distributing internationally were compelling.
In fact, Netflix had bet on this model longer before Disney's Investor Day, as I wrote in Netflix & Dotdash, Imitated But Never Replicated by Condé Nast:
Netflix began its international expansion in 2011, and quickly saw that it was “a foreign interloper with little knowledge of the best voice studios or actors in a given market”.
It realized:
To satisfy viewers everywhere from Seoul to Buenos Aires, it needs to create localized versions of hundreds of different shows annually.
Its solution has been “partnerships with more than 170 dubbing studios that produce programming in at least 34 languages.”
In this light, Disney seems like it is proceeding at a snail's pace behind Netflix in this regard at a time where it needs to solve for local language content to drive global growth.
Netflix's Q4 2021 Marketing Expenses (Members Only)
There was one topic not discussed either in Netflix's Q4 2021 letter to shareholders or earnings call was marketing. Specifically, marketing expenses shot up to $793M from $636M in Q3 2021 (~25%), and year-over-year from $762M in Q4 2020 (~4%).
Why the difference and why the significant jump?
The jump isn't that unusual: marketing spend went up 44% in Q4 2020, up 24% from Q3, but it also went up 45% in Q4 2020 from Q3 2020 and 58% in Q4 2019 from Q3.
So, in that light, there is a surprising reason they did not mention it: they achieved 40% more growth in the U.S. and Canada, alone, in Q4 2021 at 80% of the Q4 2020 spend.
That accomplishment is worth flagging for three reasons.
First, its most recent 10-K revealed reduced spending on advertising to $1.45 billion from $1.88 billion globally in 2020). That trend seems to continue, despite 2021 creating post-App-Tracking-Transparency headwinds for marketers.
That said, Netflix conceded that "added competition may be affecting our marginal growth some" as a partial explanation for the miss of 8.3MM adds as opposed to 8.5MM projected. The implication is that the spend was either too little, or it was efficient at the cost of growth.
Second, Netflix is a direct-to-consumer business and, like every DTC and e-commerce marketer interviewed in this eSeller365 piece, it now must navigate these post-App-Tracking-Transparency headwinds and the growing value of first-party data.
There is an ambiguity in these numbers: has Netflix figured out marketing efficiency, or is its customer acquisition cost too efficient in the face of increased competition? How does that impact its Lifetime value calculations?
Last, returning to the topic of this past week's Member Mailing - Does $115B+ in Content Spend Reflect Inelastic Demand? Or Marketing Challenges in Streaming, Instead? - it is worth revisiting this second reason through the lens of how other streamers are marketing.
Do these earnings imply that marketing campaigns from other streamers - more often than not built around A-List talent - are succeeding? I think the answer is yes, but marginally.
Whatever one wants to call the "streaming wars", the competition seems to be over marginal consumers in a fiscal quarter who may or may not be subscribed to multiple services at a time. Through that lens, given Netflix's continued dominance it is getting harder to call this a competition, much less a war.
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