Disney Transformed

Oct 17, 2005  •  Post A Comment

In one fell swoop, The Walt Disney Co. was transformed last week from the staid media company it had been known as under former Chairman and CEO Michael Eisner into a technologically innovative first mover under current CEO Robert Iger, according to many technology analysts.

Disney and Apple unveiled a deal last Wednesday to make episodes of some of Disney-owned ABC’s most popular television series-including “Desperate Housewives” and “Lost”-available for download on Apple Computer’s popular iTunes Music Store. The pact immediately was hailed as the clearest sign yet that large media companies, after several fits and starts, are beginning to embrace new technologies and alternative distribution platforms in a real and meaningful way.

In fact, when it comes to embracing new technology, it appears Disney is doing more than walking the walk, it’s sprinting. And other large media companies are expected to follow.

“This is an inkling of the steps of large media companies coming to grips with the issue of broadband distribution, and the understanding that what we are looking at is a consumer-controlled universe,” said Michael McGuire, research director at technology consulting firm Gartner. Under Mr. Eisner, Disney’s technological forays were largely “me-too” efforts, following on a trail that had already been blazed. Such was the case with Disney’s billion-dollar dive into the Internet space. However, under Mr. Iger, who has made a priority of embracing new technology, Disney has become a pioneer in the new media space.

Mr. Iger and Apple CEO Steve Jobs hatched the idea earlier this year at an investor conference and have quietly been working out the details ever since, sources said.

“For Disney, this is more than putting a toe in the water, it’s putting a leg in the water,” said Richard Doherty, research director at Envisioneering, a Seaford, N.Y., technology consulting firm.

Anne Sweeney, co-chairman of Disney’s Media Networks division and president of the Disney-ABC Television Group, said the company’s executives felt strongly about the deal “because it gave our viewers yet another opportunity to experience their favorite television shows. The technology was additive to our distribution system.”

Other large media companies are expected to follow Disney’s lead, and for good reason: With high-speed data services finding their way into more households and a growing number of consumers demanding that entertainment content be delivered on an on-demand basis, partnerships like Disney and Apple’s are likely to become more common. Already, several media companies, including Disney, NBC Universal and Viacom’s MTV Networks, are exploring ways to deliver video content to mobile phones and personal digital assistants. iPod is already dominant in the portable music player and music download spaces, and analysts expect executives with other media companies to soon start trying to book meetings with Mr. Jobs to discuss ways that Apple can partner with them.

However, while the Disney deal is expected to be just the first of many with Apple and other alternative distribution platforms, officials at ABC’s rival networks said they aren’t likely to make an immediate dash for Apple’s Cupertino, Calif., offices to strike a similar arrangement. Indeed, many networks are already having conversations with Apple and other companies about ways to distribute network programming on portable devices or via the Internet. In the case of CBS, the network already has a partnership with Apple to make available audio clips from programs such as “60 Minutes” and “Guiding Light” as podcasts.

“NBC Universal Digital Media is having conversations with many top players,” said Deborah Reif, president of NBC Universal Digital Media. “Our goal has been and will always be to make sure that the consumer has a great experience and that our content is well protected.”

The video iPod isn’t the first portable video player to come to market. EchoStar, for example, offers its portable, time-shifting PocketDish device, TiVoToGo lets users move TV content to laptops and Sony’s PSP supports downloaded movie and game trailers.

But, said Mohan Renganathan, associate director of digital strategy for Publicis Groupe’s MediaVest, the Disney-Apple deal “is the first time a major network has put a toe in the water to see if [downloadable TV content] can be an economic model, not just a distribution model.”

As part of the pact between Disney and Apple, consumers will pay $1.99 to download commercial-free episodes of “Desperate Housewives,” “Lost” and “Night Stalker” from ABC and Disney Channel programs “That’s So Raven” and “The Suite of Zack & Cody.” Episodes from past seasons will be immediately available, while new episodes from the current season will be available for download the day after they air on the network. The downloads will contain antipiracy technology that will prevent content from being downloaded onto CDs or DVDs.

How much revenue ABC will generate from the Apple partnership is unknown. Deutsche Bank media analyst Doug Mitchelson predicted the partnership, which he regarded as little more than experiment, could generate between $6 million and $7 million in revenue if iTunes sells 5 million downloads.

He arrived at the figure by assuming Disney’s revenue-sharing arrangement with Apple is similar to what Apple has with the music labels, in which Apple keeps 30 percent to 40 percent of every dollar booked. Mr. Mitchelson added that Disney’s take could be less than his estimate once revenue from the iTunes sales is distributed among the shows’ back-end participants.

Advertising Age contributed to this report.