Written by TV

What Do Disney+ and HBO Max Mean for Sky?

Disney+ and Sky

Earlier this year, we finally got some detail on Disney’s upcoming new service, Disney+. The new streaming service will launch on November 12 this year in the US at a monthly cost of $6.99 – discounted a little to $69.99 if you pay for a year up front. Or you can pay $12.99 a month for Disney+, ESPN+ and Hulu. Disney is projecting that they will reach 60-90m subscribers by the end of the first five years of business. One third of those will be in the US, and two thirds outside the US. I confess that this feels somewhat conservative to me. At that price-point and with their brand equity, those numbers should easily be outpaced.

After all, US households already spend a lot on Disney.

Disney expects to be spending $1bn+ in the first year of the service rising to $2bn a year by FY 2024.

In the first year of the service, there will be 25 new original series on the service including ones in the Star Wars and Marvel universes. There will be a further 10 movies and specials. By the end of the first five years, they expect that this will have expanded to 50 new series.

Disney has also been busy either buying back rights that it had previously sold to other studios, or is waiting for some of those existing rights agreements to expire. Most famously, there’s the Netflix agreement which expired at the end of 2018, but is still running with the final movies that were released in the calendar year 2018 still getting their ‘windows’ on Netflix.

That also affects TV. Disney says that at the start there will be 7,500 past episodes of TV (they don’t detail the number of series that represents), and this will increase to to 10,000+ by the end of FY 2024.

In terms of the UK, there are some interesting ramifications. Exactly when Disney+ launches in the UK still isn’t clear, but Disney’s Global Roadmap suggests that it will launch either at the same time as the US, or in early 2020 along with the rest of Europe. Disney has just announced that the service will also launch in Canada and the Netherlands on November 12, with Australia and New Zealand launching a week later.

You would suspect that this lack of a UK launch date may be aligned with the expiration of other deals. In the UK, Disney notably has had a long-term deal with Sky.

Sky has a “Pay 1” window for Disney’s movies – meaning that they get Marvel, Disney, Pixar and Star Wars movies on their platform some 9-12 months after theatrical release. Only buying or renting during the retail window (usually 4-6 months after theatrical release) can you get there earlier.

Sky’s current deal is said to expire in 2020, and it seems likely that Disney won’t renew it. That essentially removes a lot of significant movies and TV from the service. It’s not even clear that the various Disney children’s channels would continue.

And now that Disney owns Fox, that also means that Sky could theoretically end being the home of The Simpsons, although Sky’s deal with Fox almost certainly doesn’t align with the Disney deal – so The Simpsons may yet be on Sky for some time to come. Disney made quite a big play of the fact that The Simpsons would be coming to Disney+ in the US.

I would anticipate that the UK launch of Disney+ will be aligned to the end of the Sky deal so that Disney’s new service has the strongest possible line-up at launch. And there is currently an existing service – Disney Life – that’ll undoubtedly transition into Disney+ at the right time.

In the US, Disney also now owns two other streaming services – Hulu and ESPN+. It seems as though Hulu will become the home for more premium programming aimed at maturer audiences, using the muscle of FX in that sphere, while Disney+ is the child friendly service. (In light of this, it may be curious that FX signed a three year output deal with the BBC last year but more on that below.)

Of course Hulu is only currently available in the US and Japan, but Disney plans on expanding it internationally. ESPN is different because it’s sports, and sports rights are invariably sold on a market by market basis.

Note that the version of ESPN that Disney will offer in it’s bundle is ESPN+. That is to say – the digital offspring of its 8-channel broadcast offering. So most of the premium ESPN sports events won’t appear on ESPN+. Disney is still wedded to the $7-8 a month it gets from cable subscribers. Because most subscribers get ESPN as part of their basic bundle, that generates a lot of revenue.

The HBO Max Challenge

Added to Sky’s challenge from losing Disney, is the potential end of their relationship with HBO.

Sky has output deals with WarnerMedia’s HBO, and CBS’s Showtime. Between these, and some original commissions – often made with partners like HBO (e.g. Chernobyl) – Sky Atlantic and Sky One are fairly reliant on these deals. HBO provides Game of Thrones (and its forthcoming prequel(s)), Westworld, Succession, Euphoria, Silicon Valley, Veep and many more. Showtime provides The Affair, Ray Donovan, Billions, the forthcoming The Loudest Voice and others.

In July, WarnerMedia announced that its new streaming service would be called HBO Max, and it would launch in Spring 2020. HBO Max – at least in the US – will carry the full HBO offering, alongside a wider collection of catalogue programming. Notably, WarnerMedia is ending its deal with Netflix for Friends and those rights will transfer to the new service. In addition, there are a number of “Max” originals being commissioned including a spin-off from the upcoming Dune movie from Denis Villeneuve.

WarnerMedia has yet to announce any ex-US launch dates, but you must wonder how this will impact on their current Sky deal. In the past, the HBO brand has operated in a variety of ways in different markets – sometimes with HBO branding and owned by WarnerMedia, and other times doing licencing deals, as with Sky.

The direction of travel seems to be 100% owned and operated streaming services, and that means a potential end to Sky’s deal with HBO.

Added to this is the fact that Sky is now owned by Comcast, who own NBC Universal, and who are also in the business of launching a new streaming service – due in April 2020, and probably built on Sky’s Now TV streaming technology. Comcast and AT&T (who own WarnerMedia) are direct rivals.

That would all seem to suggest that at some point in the future the upcoming Game of Thrones prequel series will “air” on HBO Max and not Sky Atlantic.

The big media conglomerates are want to use their own platforms to broadcast their own output. And Sky is now part of one of those conglomerates in Comcast.

There are still complications. Friends may have been made by Warners, but WarnerMedia still has to pay “itself” a big cheque to put the series on HBO Max because some of the creators and cast are profit participants. In other words, WarnerMedia needs to pay the going rate or risk being sued by those profit participants for not maximising their returns. (A recent case involving the series Bones and Fox Studio “self-dealing” a sweetheart deal for the streaming rights is a case in point.)

You can look further and see what else might go away from Sky.

Sky One is home to most of the “Arrowverse” shows – Arrow, The Flash, Supergirl etc. These air on the CW network in the US, which is owned by WarnerMedia. The characters are all from DC Comics, which in turn is now part of WarnerMedia. How long Sky’s contracts for these shows runs will be interesting to discover, because you can see them being used as leverage to drive HBO Max subscriptions.

Lest we feel too sorry for Sky, recall that they were previously very much in the game of poaching shows like 24 from the BBC and Lost from Channel 4.

And Sky is much more than Disney, Fox and HBO. They’ve extended other film deals with other studios; they have a relationship with Showtime; they make a lot themselves; and they have the Premier League amongst many other assets. And now they’re part of Comcast.

Where Next?

Time will tell as to when Disney+, HBO Max and NBC Universal all launch in the UK – or indeed outside the US – and how much they will cost.

Into this mix, we also need to add Apple TV+ (price unknown), and of course Netflix and Amazon Prime Video.

How many of these OTT services will any one household subscribe to? That remains to be seen. I’m inclined to disbelieve anyone who tells you what the right number is. It’s probably higher than you think it is, but not as high as a TV exec might hope.

While we’re at it, you just know that whoever eventually gets to be the new chief executive of the Premier League, will be carefully running the ruler over the idea of spinning off a Premier League over the top service. If they think they can get more money that way, they’ll do it. I’m not convinced that’s the right answer however.

Order of Importance – UK

If I had to order them, here’s what I’d say:

Netflix is top of the pile – a recent slight fall in US subscribers notwithstanding.

Amazon and Disney are perhaps tied for second. Amazon as part of a wider suite of things. Disney because if you’ve got kids (“big” kids even), then it hits the mark.

And then it gets complicated. In the US, HBO Max might be up next. But in the UK, Now TV fills that gap. At least while you can still watch HBO shows on it.

I’d place Apple TV+ below both of these. They have no catalogue of shows, and basically their premise seems to be that you can subscribe to other services through their service. A handful of US oriented shows won’t do much to move the needle. Obviously, they could make their shows free on their own devices. But when did Apple ever give away much? (And yes – The Morning Show looks to be totally in my wheelhouse!)

Then we get into the specialist world – anime, horror, MUBI, BFI Player, Starzplay and so on. You see them on Amazon’s platform. I suspect BritBox will be in that mix somewhere too. It will take ITV (the majority owner) to really invest in some killer shows to move it up the list.

I don’t see an international version of Hulu arriving anytime soon. I suspect that’s why FX was able to do its output deal with the BBC. Hulu has little brand equity here in Europe. Similarly, ESPN doesn’t travel because sports rights owners sell their output on a territory by territory basis. To enter the UK market, you would need to spend billions.

While all these services make it easy to subscribe and cancel at will, the multiplicity of services doesn’t really matter. You subscribe for a couple of months for Game of Thrones and then cancel when it’s finished. Perhaps you’ll do the same for Disney+ with The Mandelorian – the new Star Wars series. In the US you might do this for Star Trek: Discovery on CBS Access All Areas (CBS’s strategy to stop this is to end up at a point where there are new Star Trek universe episodes airing most weeks of the year).

But a platform could become a little more like satellite and cable companies have historically been – locking you into 12 month deals – perhaps on a discounted basis. Amazon in effect already does this.

In the meantime, it’s going to be interesting to see what Sky does in the next few months and years, as those Disney and WarnerMedia deals expire.

Right – I’ve got to get back to season two of the wonderful Succession. An HBO show on Sky Atlantic in the UK…