2019-10-16 The Hollywood Reporter

THE HOLLYWOOD REPORTER 61 OCTOBER 16, 2019

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for the launch of two streaming

services: a family-friendly option

that would become Disney+ and

the sports-centric ESPN+. It was

a shot across the bow for Netflix,

which saw its stock drop 5 per-

cent on the news.

As Disney began to put the

pieces in place for Disney+, one of

the first questions concerned the

content identity of the service.

With the film library coming

home, executives knew they’d

be able to offer current releases

like Captain Marvel, Avengers:

Endgame and the remake of The

Lion King, but they would need to

pad out the offering. “The first

thing I did was make sure that

the library was going to be ready

for our launch,” says senior vp

content Agnes Chu, a longtime

Disney executive who was one

of the first to be pulled onto the

Disney+ team. “It was everything

from going into our vault and

physically looking at things that

had not yet been restored to [pag-

ing through] binders of pieces of

paper with legal deals.”

says. For those films that are

released in theaters, Disney

doesn’t plan on changing any

windows to bring them sooner

to Disney+, which means there

will be around a seven-month

wait for titles like the upcoming

Frozen 2 and Star Wars: The Rise of

Skywalker to hit the service (To y

Story 4 should become available

in early 2020).

One of the first TV projects

Disney+ ordered was Favreau’s

Mandalorian, complicated

not only by the fact that it is

Lucasfilm’s first live-action Star

Wars series but also because

Disney+ is essentially a brand-

new network and needed to

figure out its deal structure.

Sources say Disney has been

moving toward a model of buy-

ing out the backend for most

projects, regardless of whether

they air on a network or stream

on Disney+, a move spurred by

the popularity of the formula

with streamers like Netflix. It’s

a decision that has irked some

Hollywood creatives, though

Dan Erlij, co-head of television

literary at UTA, notes that the

introduction of a new service like

Disney+ ultimately will “make

the competition for branded con-

tent — including recognizable

intellectual property and brand-

name showrunnners — even

more heated, with talent reaping

the benefits of higher pay.” Chu

declined to comment on specific

deal terms.

Disney is sparing no expense

on programming, project-

ing a 2020 original content

budget short of $1 billion. The

Mandalorian is said to cost

$15 million an episode, for

instance, and a source pegs

Marvel entries The Falcon and the

Winter Soldier, Wan d aV isi on and

Hawkeye at as much as $25 mil-

lion per episode. Rounding

out the high-end projects are

unscripted and shortform series

like Encore with host Kristen

Bell, on which adults will restage

their high school musicals, and

One Day at Disney, which will

follow employees in various divi-

sions at the company.

There have been a few

stumbles to get to the current

lineup. Two high-profile proj-

ects, Disney villains drama

Book of Enchantment and com-

edy Muppets Live Another Day,

were scrapped in the sum-

mer over creative differences

with producers.

Disney’s focus on buying from

its in-house studios has meant

that it is more selective about

outside projects, though it has

ordered CBS TV Studios’ Gina

Rodriguez-produced Diary of a

Female President. “Disney was

our first meeting,” Rodriguez

says. “We got a straight-to-series

offer and we didn’t keep trying to

find another home for the show.

Our missions just aligned so

well.” Ricky Strauss, who is over-

seeing the programming efforts

as president of content and

marketing, says he will look to

programming to Hulu, which

at the time it owned as a

minority stakeholder along-

side rivals NBCUniversal and

21st Century Fox.

But it would take some time

before Disney was ready to go

all in on its own streaming

platform. For one thing, it had

its relationship with the cable

providers to worry about. For

another, it was in the middle

of a multiyear film output deal

with Netflix estimated to be

worth between $200 million and

$300 million.

Almost exactly two years from

that first revelation, Iger stunned

investors with the announce-

ment that Disney would pull its

films from Netflix in preparation

She also took meetings with

the heads of Disney’s divisions,

sitting down with Walt Disney

Studios production president

Sean Bailey and Lucasfilm

president Kathleen Kennedy to

discuss what a Disney+ original

film or Star Wars TV series could

look like. Bailey soon agreed to

move the Anna Kendrick holiday

comedy Noelle, once earmarked

for theatrical release, to the

service. Chu says the conversa-

tion around which projects make

sense for streaming is guided by

their budgets but also focused

around determining whether

a project warrants a theatrical

release. “There are films that

work really well in theaters

and require the big screen,” she

Disney+

originals at launch

will include:

1 The Mandalorian

2 High School

Musical:

The Musical:

The Series

3 The World

According to Jeff

Goldblum

4 A Lady and the

Tr a m p remake

4

call with Disney investors dur-

ing which he’d decided to speak

candidly about the state of the

company’s pay TV business.

ESPN, in particular, had been

hit by the erosion of the cable

bundle and had suffered a loss

of 7 million subscribers in two

years, though he assured stock-

holders that he had “enormous

confidence in ESPN’s future, no

matter how technology disrupts

the media business.” The stock

dropped 6 percent that evening.

By the end of August, it was down

15 percent.

“That was, in effect, an alarm

bell,” Iger reflects. “It incentiv-

ized us to address the issue

quickly and aggressively.” The

next summer, Disney invested

$1 billion in the MLB’s industry-

leading BAMTech streaming

technology business. (It later

acquired a majority stake in

the company, since renamed

Disney Streaming Services, to

make it the infrastructure of

its D2C product.) It also contin-

ued to invest in and distribute

It will take a multibillion-dollar

investment for Disney to reorient

around streaming. Here’s a look

at the first two years of losses

THE COST OF

STREAMING

$150M

$3.9B

$4.9B

Loss of Third-Party Licensing

Revenue 2019

Estimated Direct-to-Consumer

Losses 2019

$650M

ESPN+ Operating Losses

$1.5B

Hulu Operating Losses

Estimated Direct-to-Consumer

Losses 2020

$1B

Disney+ Original

Content Investment

$1.5B

Disney+ Licensed

Content Expense

$650M

ESPN+ Operating Losses

Less Than $1.5B

Hulu Operating Losses

Source: Disney, MoffettNathanson