Disney's New Corporate Structure Makes It a Lot More Like Netflix

Disney (NYSE: DIS) just made a major overhaul to the way it produces and distributes new films and television series. The company's creating a Media and Entertainment Distribution group, which will decide where each new piece of content goes -- theaters, broadcast and cable networks, streaming, or some combination of all three.

CEO Bob Chapek said the restructuring will allow its various content groups to focus more on productions intended for streaming. And the greater flexibility in distribution could open the door to create content more like Netflix (NASDAQ: NFLX).

The Disney+ home screen displayed on a television.

Disney+ home screen. Image source: Disney.

Separating content creation from distribution

The overarching goal of the restructuring is to remove the silos of content distribution for each segment of Disney's media business. Disney's film studios previously operated under the assumption that everything it produces will have a theatrical run. Likewise, the television studios were producing content that fits the linear TV format.

Under Disney's new corporate structure, all productions from Disney's three content groups -- studios, general entertainment, and sports -- will funnel into the Distribution group, headed by Kareem Daniel. His team will decide how to maximize the value of each piece of content.

Disney has already had to make decisions about releasing content through distribution channels it didn't originally intend to use. Several films, including Hamilton and Mulan, saw distribution through Disney+. Pixar's Soul will go that way, too. With the restructuring, Disney's telegraphing its intent to distribute more films directly to consumers via its streaming services.

Becoming a streaming leader

Disney says the primary focus of each content group is now on producing content for its streaming services. Disney currently operates three direct-to-consumer streaming services and will provide details on its fourth offering -- a Star-branded service in international markets -- at its investor day in December.

By loosening the constraints on what distribution method each content group will use, it opens the door for more productions and more creativity. Netflix has shown that flexibility can lead to better viewer experiences and more efficient use of its content budget.

In the last 20 years or so, Disney (and other major studios) have almost exclusively focused on producing big-budget blockbusters. Sometimes that pays off handsomely, like in 2019; sometimes it doesn't, like in 2020. If the studios didn't have to selectively produce films that drive viewers to theaters, it could make more projects viable for Disney.

Netflix, for example, is set to release over 100 new films this year. Disney issued about one-fourth of Netflix's output last year.

Similarly, Netflix is able to release hundreds of hours of new series every year since it's not locked into windowing its content into three hours of primetime viewing every night. Series can be as many episodes as makes sense to tell the story. And they don't need the same mass appeal as a primetime show on ABC.

If Disney wants to compete with Netflix, it'll need to produce more content. It can't do that if its film group is only trying to make blockbusters.

Chapek says he expects new content every week on Disney+ going forward. Growing its content catalog is key to building on the strong subscriber base the company has quickly attracted with Disney+, as well as its ability to raise its price in the future.

Disney certainly isn't abandoning its extremely profitable theatrical releases and media networks business. But the greater flexibility inherent in its new corporate structure will allow it to produce more content for streaming, driving greater efficiency in its content budget and subscriber growth.

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Adam Levy owns shares of Walt Disney. The Motley Fool owns shares of and recommends Netflix and Walt Disney and recommends the following options: long January 2021 $60 calls on Walt Disney and short October 2020 $125 calls on Walt Disney. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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