Analyst: After ditching Starz, Disney could take on Netflix with VOD offering

Michelle Clancy | 26-09-2012

A Wall Street analyst is postulating that Disney could become the next big subscription video-on-demand (SVOD) provider, taking on Netflix et al in the crowded online video market by leveraging an existing, little-known premium offering that it already has in-house. But, it would require ditching a distribution deal with Starz.

The premium offering in question is Disney Family Movies, which right now offers only older movies and content via cable and IPTV online VOD services. But, that could all change if DIsney played its cards right, according to Todd Juenger at Sanford Bernstein.

"Disney could transform this sleepy little excuse for a library service into a bold, disruptive, proprietary, Disney-branded premium SVOD service," said Juenger, writing in a report.

Disney's film studio right now supplies its best titles exclusively to the Starz premium movie channel under a contract that doesn't expire until 2015. In order for the theory to become reality, Disney would need to exit that relationship in order to leverage its top titles for itself.

The Starz deal, Juenger said, is probably worth around $225 million per year to Disney, but offering a SVOD product could make even more revenue sense, with Disney easily reaching 12 million subscribers by 2020, each paying $5-$10 per month. The gambit would pay off at only 4 million subs, but at 12 million, the service would add $475 million in incremental operating income to the media giant.

And, if it offers the service exclusively via pay-TV operator TV Everywhere portals, the revenue opportunity could go up even further. The SVOD business opportunity is simply a "hidden treasure," Juenger wrote.

Starz and Netflix would certainly feel the effects of such a move on Disney's part (for which there is no indication that it is considering the play). "Would Starz abandon majors (a la Showtime) or redouble around Sony/Universal?" he noted, speaking to the Hollywood Reporter. "Netflix would face a mighty competitive entry, but could maybe pick up Sony or Universal movies."