Disney Is Building the Streaming App to Rule Them All

Amazon may have locked up the streaming rights to the Lord of the Rings universe, but Disney has stolen that thunder with its upcoming standalone platform that will now include the film and television assets of 21st Century Fox. The nearly century-old entertainment empire will soon be offered on-demand.

Even before Disney announced a blockbuster deal to acquire 21st Century Fox for $52.4 billion, the entertainment giant's video-streaming service was set to give Netflix, Amazon Video, and Hulu a run for their money. Disney has two streaming apps in the works: an ESPN-branded multi-sport video streaming service called ESPN Plus in early 2018; and an as-yet-unnamed Disney-branded service launching in 2019.

The Disney streaming platform will be the exclusive home for Disney's live action and animated films, as well as content from Pixar and the Disney kids TV channels. That means Disney content will be yanked from Netflix ($0.00 at Apple.com) beginning with the 2019 theatrical slate, so don't look for Toy Story 4, Frozen 2, or the live-action remake of The Lion King alongside future seasons of Stranger Things or The Crown.

Disney hasn't announced streaming distribution plans for its Marvel Studios and Lucasfilm properties, but you can bet the Marvel Cinematic Universe (MCU) and Star Wars mega-franchises will follow. And don't forget the ­X-Men universe, films from 21st Century Fox and Fox Searchlight Pictures, the exhaustive FX Networks TV catalog, and everything else in the Fox vault from National Geographic to The Simpsons.

Like its rivals, Disney will also develop original movies, TV series, and other short-form content. Disney CEO Bob Iger said during a company earnings call that Disney plans to develop around five original films per year for its streaming platform, plus TV series like a live action Star Wars show, new Marvel shows, and adapted content based on properties like Monsters, Inc. and High School Musical.

Disney's streaming service will join CBS All Access (7-Day Free Trial at CBS All Access) and apps from networks like HBO, Showtime, and Starz in an increasingly fractured landscape. But armed with one of the deepest content catalogs and more brand-name franchises and universes than most of the other services combined, Disney could easily undercut its competitors.

The 21st Century Fox Deal

After weeks of rumors, Disney's mega deal for 21st Century Fox is now official. Disney's Iger, who will now remain in charge through at least 2021, pulled off an all-stock deal worth $52.4 billion for the better part of Fox's entertainment holdings.

Fox will keep its broadcast network and local stations, Fox News, Fox Business, FS1, FS2 and Big Ten Networks, but everything else, more or less, goes to Disney. The deal will include all 21st Century Fox film and television production businesses including Twentieth Century Fox, Fox Searchlight Pictures, Fox 2000, Twentieth Century Fox Television, and FX Productions. Disney also scoops up FX Networks, National Geographic Partners, Fox Sports Regional Networks, and other international stations.

These 21st Century Fox properties might be available on-demand as part of Disney's streaming catalog, but the official announcement called particular attention to the now-complete Marvel universe under Disney's roof as well as the Avatar franchise:

"The agreement also provides Disney with the opportunity to reunite the X-Men, Fantastic Four and Deadpool with the Marvel family under one roof and create richer, more complex worlds of inter-related characters and stories that audiences have shown they love," Disney said. "The addition of Avatar to its family of films also promises expanded opportunities for consumers to watch and experience storytelling within these extraordinary fantasy worlds."

One of the most intriguing aspects of the Disney/21st Century Fox deal is Disney's acquisition of Fox's 30 percent Hulu stake. This gives Disney a majority 60 percent ownership of Hulu in addition to its own standalone streaming platform, allowing it to divide and conquer in the streaming space. CNBC likened the move to Facebook buying Instagram.

The deal must be approved by the Disney and Fox boards and will face some serious antitrust scrutiny and regulatory reviews, but if approved, the transaction will close by June 30, 2018. Disney's streaming platform isn't launching until 2019, so there will be plenty of time to get all that content under one roof.

Disney's Streaming Empire: Built by…MLB?

The core technology behind Disney's streaming platform comes from its majority ownership of BAMTech, a company spun out of the tech arm of Major League Baseball. Disney has slowly acquired larger stakes in BAMTech over the years, and it's no coincidence Disney announced its BAMTech takeover in the same press release that revealed plans for its ESPN and Disney-branded streaming services.

BAMTech dates back to 2015. After Major League Baseball decided it wanted to stream games directly to consumers, the venture proved so popular that MLB Advanced Media, which Forbes once called "the biggest media company you've never heard of," spun out BAMTech as its own entity. It now powers not only MLB.TV and the MLB At Bat mobile app, but HBO Now ($0.00 at Apple.com) , the NHL, the PGA Tour, Watch ESPN, Playstation Vue, and even WWE Network. Last year, BAMTech announced a joint venture with Discovery Communications to launch BAMTech Europe, and will power European streaming for the Olympic Games starting in 2018.

In August 2016, Disney bought a 33 percent share of BAMTech for $1 billion, and another 42 percent in 2016 for $1.58 billion, giving Mickey 75 percent majority ownership.

The BAMTech takeover is important because it solves arguably the most difficult aspect of launching a streaming platform: a high-powered, back-end infrastructure that ensures users can access high-quality video content anywhere in the world without lag or buffering.

Streaming giants do some of the most cutting-edge back-end data innovation on the web. Streaming reliable HD video at 720 or 1080p resolution requires tens of thousands of servers combined with a robust content delivery network (CDN) with local computing power all over the world. Netflix has spent years building out its Open Connect CDN, and completed a massive cloud migration last year from its own data centers to Amazon Web Services.

The nuances of which streaming services use which cloud infrastructure and CDN providers can get confusing, but BAMTech's technology stack gives Disney a network of data centers on six continents for streaming HD 1080p, HDR and even 4K video. Instead of spending years building the infrastructure to support its ESPN and Disney-branded streaming services, the media conglomerate did what it does best by simply acquiring a ready-made platform.

A Whole New Streaming World

Netflix, Hulu, and Amazon have been stockpiling their war chests for the past few years to stave off the inevitable counter-offensive from "old Hollywood." Licensing rights to network and studio-owned content is expensive, hence why Netflix has seen its selection of big-name movies dwindle as deals have expired, replaced with what seems like a dozen original shows and movies every week. Everyone is looking for the next Game of Thrones.

Hulu paid an estimated $160 million for the rights to stream Seinfeld, which seems like a lot until you compare it to what Netflix is spending on content: $5 billion in 2016; $6 billion in 2017; and upwards of $8 billion next year to reach 50 percent original content by the end of 2018 (all while taking on more debt). Netflix's budget includes both licensed and original content. A day before Disney announced its streaming plans, Netflix made its first-ever acquisition with comic book publisher Millarworld, best known for adaptations such as Kick-Ass and Kingsman, which should certainly provide a wealth of original content inspiration.

Amazon doesn't have a problem burning cash either, spending a reported $250 million to acquire the rights to adapt The Lord of the Rings into a multi-season TV series. That does not include the reported $4.5 billion it spent on hits like Man in the High Castle and Transparent, shows like The Tick and its upcoming Philip K. Dick anthology series Electric Dreams, a clear response to Black Mirror on Netflix.

Hulu only has one bona-fide original hit show in The Handmaid's Tale and its content budget is dwarfed by that of its rivals. That's not surprising considering it has been owned by a quartet of established media companies. Comcast NBCUniversal, Disney, and Fox each own 30 percent stakes, while Time Warner (ultimately AT&T if or when the Justice Department's antitrust lawsuit is over) owns 10 percent. Disney's 21st Century Fox acquisition is a game-changer in this regard. What Disney decides to do with Hulu is up in the air for now, but it's safe to say this deal represents the end of Hulu as we know it.

Disney's Bigger Picture

In a streaming landscape where content providers force viewers to pay for more and more services, Disney plans to undercut its competition on price. Disney's streaming service will be priced "substantially below" that of Netflix, Iger said during the earnings calls. After all, Disney already owns a massive catalog of movies and shows, eliminating the need for it to sign licensing deals or spend as much on original content as Netflix.

The streaming revolution has hit filmmaking and the traditional entertainment industry hard. Theater chains are pouring money into perks like recliner seats and a new Dolby Surround Sound experience to lure viewers back to the box office, while startups like MoviePass hit old-school Hollywood from a second front. As film studios lose revenue every year, Disney is doubling down on streaming and hitting back at Netflix and other digital disruptors, now acquiring one of those struggling studios in 21st Century Fox.

Disney's entertainment empire, however, goes far beyond that. At its core, the BAMTech-powered streaming platform is another entry point for consumers to find their way into Disney's entertainment industrial complex. Disney is opening Star Wars theme parks in 2019 at Disneyland in California and Disney World in Florida. New Marvel rides and attractions are on the way, with a full-blown MCU theme park sure to follow. Disney's 21st Century Fox announcement calls attention to the fact that there's already an Avatar-themed park in Disney's Animal Kingdom.

Disney's biggest paydays on its franchise films don't even come from box office sales; the company has made more than $262 billion on merchandising and toys from Star Wars: The Force Awakens alone. The company's publishing arms churn out books and comics on all of its properties. Disney's standalone streaming app gives the company a prominent foothold in streaming that it hasn't quite achieved with minority Hulu ownership alone, but ultimately it's Disney's ever-expanding and consolidating universe. We're all just living in it, a few hours at a time.

Editor's Note: This story was updated on Dec. 14 with details about Disney's acquisition of 21st Century Fox, and on Dec. 18 to reflect that Netflix's $6 billion content budget in 2017 includes both licensed and original content, not solely original content as was originally stated.

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