No one, at this exact moment in the content business, has an itchier trigger finger than The Walt Disney Co. chairman and CEO Robert Iger.
With Facebook, Amazon, Netflix or Google staring him down, Iger is poised to press forward on a bold plan to remake one of the largest entertainment companies in the world by adding the 20th Century Fox film studio and other assets from 21st Century Fox.
Iger has already committed to making Disney TV into a direct-to-consumer business by spring 2018, and in many respects, he appears to have everything in order.
● A vast branded library of premium content? Check.
● A team of talented tastemakers who know the audience? Check.
● An arsenal of streaming technology? Check.
But the really big bet by Disney and others doesn’t hinge on the tech, the team or the content. It’s the timing. Of all the challenges for a business in today’s hyperkinetic digital television industry — funding, marketing, key people, even exploiting the right idea — none is more crucial than timing.
Recently, academics and researchers have begun to place a new importance on timing that underscores how essential it is to success in business. The goal is to understand how decisions are made during massive, sweeping shifts in business, and why some companies seem almost destined to fail.
Of all the factors critical to a successful business launch, research shows timing (42%) trumped team execution (32%) ideas (28%) and the business model (24%), according to Bill Gross, CEO of IdeaLab, a business incubator, who gave a TED talk on the topic.
Gross noted that many investors passed on Airbnb (now worth $25 billion) because few could embrace the idea of allowing a stranger to stay overnight in their house. The young company had a skilled business team and financing, but one thing was far more important — timing. The company was launched during a recession, and that made all the difference. Uber thrived for much the same reason.
In a study published last year in the Harvard Business Review titled “Right Tech, Wrong Time,” two business professors analyzed how innovators fared against incumbents during disruption across many industries.
“When it comes to strategizing for a revolution, the question of ‘whether’ often drowns out the question of ‘when,’ ” wrote Ron Adner, a professor of strategy and entrepreneurship at Dartmouth College’s Tuck School of Business, and Rahul Kapoor, an associate professor of management at the Wharton School of Business. “Unfortunately, getting the first right but not the second can be devastating.”
For companies waiting for the right moment to jump into any digital business, the pace of the merry-go-round has accelerated to a blur in recent years, with traditional TV affected by cord-cutting and with the swift adoption of broadband and mobile devices by millennial markets not just in the U.S., but worldwide.
Memories of myriad crash-and-burn startups from the Internet are fresh: Webvan, a grocery delivery service launched in 1996, famously spent more than $1 billion on warehouses and computer servers, mostly raised from blue-chip venture capital funds, before it declared bankruptcy. But today, online delivery of home groceries is a great business for latecomers like FreshDirect.
What Iger and his team at Disney had discussed for weeks leading up to the late summer announcement to go direct was the same question now getting batted around at every programmer — big and small — in the television industry: Is the market ready for our direct-to home service now?
The digital graveyard is filled with the corpses of companies that had all the right stuff, but the absolute wrong timing. And the television industry is rife with examples of companies that missed the beat of the business jump rope. Going to market too early is often worse than launching too late. @Home, the Olympic Triplecast and the Full Service Network in Orlando were just a few big cable business ideas before their time. “Innovation takes patience,” said Phil McKinney, a Silicon Valley veteran and president and CEO of CableLabs who advises and mentors startups.
Two key questions the incumbents fail to ask according to professors Adner and Kapoor: “Is the new ecosystem ready to roll? Does the old ecosystem hold potential for improvement?”
HDTV, for example, couldn’t gain traction until the ecosystem — high-definition cameras and new broadcast standards — was ready.
“For the pioneers who developed HDTV technology in the 1980s, being right about the vision brought little comfort during the 30 years it took for the rest of the ecosystem to emerge,” the professor wrote in HBR.
In the television industry, Netflix offers perhaps the most elegant example of perfect timing. In the late 1990s, cable operators were beginning to offer movies-on-demand over broadband. The MSOs enjoyed a monopoly lead over competitors, with a built-in infrastructure to deliver content over wires, contracts with myriad cable networks and a willing audience hungry for movies without ads.
Netflix, on the other hand, had no big content agreements to speak of, a library of aging movies and it delivered DVDs in red envelopes via the postal service. Blockbuster presented shelves of DVD movie boxes in retail stores. (Remember late fees?)
Netflix began to quietly transition from DVD mailers to streaming content around 2007, unveiling a slick interface and an intuitive menu — impeccable timing as broadband penetration zoomed past 50% of U.S. households, internet usage exploded and Wall Street was warming to scale in the TV business.
Blockbuster infamously passed on what now would be considered ideal timing: an opportunity to buy Netflix for $50 million; CEO John Antioco passed on the offer in 2000. Unable to move early or decisively, Blockbuster filed for Chapter 11 bankruptcy protection in 2010. Cable industry executives, complacent with their dominance, brushed aside Netflix’s growth.
When asked about Netflix in 2010, after the service had broken 20 million subscribers, Time Warner chairman and CEO Jeff Bewkes famously said: “It’s a little bit like, is the Albanian army going to take over the world? I don’t think so.”
Even Netflix misjudged, briefly, the timing of its own streaming product, killing off a DVD-only service it split off called Qwikster in 2011 in an embarrassing pullback days after it was announced.
Fast-forward to today: Cable operators failed to innovate, and customers grew annoyed. The remedy for Netflix was a marketing plan to offer cable subscribers the same content online, but it failed to catch fire. The TV everywhere campaign went nowhere.
Today, Netflix is an $8.8 billion global force in television with 109 million subscribers, a behemoth that will spend $8 billion on content and occupies one-third of all Internet bandwidth at peak periods. And traditional cable programmers are foundering, with falling ratings, declining audiences and lower stock prices — and much more competition. Indeed, Disney’s own ESPN has dropped from a peak of 100 million subscribers in 2011 to 87 million today.
What impressed Dartmouth’s Adner is that Netflix CEO Reed Hastings entered the on-demand market with DVD mailers, and then patiently bided his time.
“Reed Hastings waits for the rest of the system to come into place before he really pulls his trigger on on-demand video,” Adner said, “rather than leaping in too quickly, and waiting for the rest of the system — that’s what makes him a brilliant strategist.”
Many consider Netflix’s lead as a global purveyor of TV too large for cable operators, or any service, to catch up. It’s “way too late” for anyone to surpass Netflix, Liberty Media chairman and veteran cable investor John Malone said recently on CNBC.
But Disney is trying. Iger thinks, presciently, that Disney is better off building a direct-to-consumer business than relying on some adfree OTT platform. And both 21st Century Fox executive chairman Rupert Murdoch and Iger now seem to be in indisputable agreement over the future of TV entertainment: scale, built on powerful brands, will matter more than anything. Murdoch knows he’s not big enough; Iger wants to be bigger.
Consumer behavior is evolving at a rate that is increasingly beyond the ability of any media CEO to predict, but did Disney linger too long before making a meaningful move? Can it scale up quickly enough to become a global aggregator and direct vendor of entertainment?
“Disney simply waited too long to make this critical decision,” wrote Richard Greenfield, a media analyst at BTIG and a frequent critic of Iger’s strategy and timing.
Disney, along with Starz and others, fueled its own decline by feeding content to the growing threat. Disney sold “more content to Netflix across film and television than any other company,” with Netflix now a “monster that we believe has achieved escape velocity,” Greenfield wrote.
Bulls say Disney’s bid to combine its empire with Fox’s popular brands, including the regional sports networks (to pair with ESPN), is perfect for a superior global DTC TV service. But an existential question remains for Disney and others: Can it thrive against vastly larger competitors such as Amazon and Netflix?
John Malone called Amazon, whose video products are merely a tease for customers to its much larger $136 billion retail business, “a Death Star within striking distance of every industry on the planet.”
Beyond the premium networks foray into the direct-to-consumer business — HBO Now, Showtime Now and Starz — few programmers have attempted it because it’s so expensive to launch and difficult to maintain. Under the lucrative business model of the past two decades, cable networks earn far more per viewer with cable operators than what they could charge under a la carte pricing.
Disney will have an uphill climb building a global DTC platform, forgoing hundreds of millions in revenue from Netflix, which today has a 64 million subscriber lead in the U.S. And it won’t immediately have a one-stop Disney destination, since Disney films are licensed to others, including Netflix and Hulu, for several more years.
“Going direct is changing the nature of the bet,” said Adner, author of the book, The Wide Lens: What Successful Innovators See That Others Miss. “Being part of the bundle, you were getting insurance. No matter what your content, you had predictable revenue. Now you’re doing away with that insurance. The big question is: How are you justifying the risk?”
“Do you think you’ll make more money by doing it or is it you you’re afraid of sinking with the ship under the old model? And it isn’t clear to me which is driving this.”