To The Moon

There are few things more popular in the U.S. and around the world today than Taylor Swift and football. As we devolve into content bubbles on social media and politics become polarized, Taylor Swift and football have become the common thread — love them or hate them.

They are the modern monoculture.

They also happen to be partners with $Walt Disney(DIS)$ . That’s not an accident.

Disney’s Streaming Strategy

I write a lot about the smiling curve here on Asymmetric Investing because it provides a useful framework for how the business world operates today. Huge tech giants thrive at scale, successful solo creators thrive on the back of global platforms, and there are lots of failures in between.

In streaming, Disney’s strategy is to move up and to the right on this curve, eventually challenging $Netflix(NFLX)$ as a dominant streaming company.

The best way for Disney to move up and to the right on the smiling curve is to provide content that customers want (duh).

Enter Taylor Swift on Disney+!

The Only Culture That Matters

In the modern media landscape, companies have to decide what kind of content they’re going to make/acquire that provides ongoing value to customers and keeps them from churning.

I think it’s clear, there’s monoculture and niche culture. Nothing else matters.

As a global brand, Disney needs to lean into its monoculture (Pixar, Disney films/shows, Star Wars, Marvel) and ride the coattails of anyone popular enough to have a monoculture moment.

This has been no more evident than on Disney’s properties over the last few weeks. Disney+ paid Taylor Swift a reported $75 million for The Era’s Tour movie/documentary. It quickly became the most-watched Disney+ movie of all time with over 4.6 million views.

But Swift isn’t the only monoculture Disney is leaning into. In sports, ESPN signed a six-year, $7.8 billion extension last week with the College Football Playoff to be the “sole media rights holder of the event through the 2031-2032 season.”

Each of Disney’s streaming services now has monoculture or tentpole content for a variety of demographics. This is the Disney streaming strategy playing out.

• Disney+: Taylor Swift Era’s Tour, Moana, Bluey

• Hulu: Shogun, The Bear, Only Murders in the Building

• ESPN: NFL, College Football, NBA

Next comes bundling all three services together.

Yesterday, Hulu was officially integrated into the Disney+ app for a small additional fee for subscribers ($2 for ad-supported and $6 for no ads). You may come to Disney+ for the Era’s Tour, but stay for The Bear.

This is a classic bundling strategy — providing content of value for a variety of customers under one roof — and it’s in effect for Disney’s entertainment business today.

Where Disney can take the strategy to the next level is adding sports to the bundle.

Sport and the Streaming Moment

The strategy in sports streaming is simple. ESPN wants a mix of extremely popular “monoculture” sports content (NFL and college football) and niche sports (UFC, F1, cricket, golf) available when ESPN goes over the top in the fall of 2025. That will make it a “must-have” for sports fans across a wide spectrum of sports assets and can drive greater bundling and lower churn for the Disney platform.

To build that position, ESPN needs to have the best rights at launch. In professional leagues, the most desirable content is the NFL (by a mile) followed by the NBA. Both are ESPN partners.

College football is between the NFL and NBA in popularity — as long as you have great games. ESPN will now have the SEC and College Football Championship available when ESPN goes over the top, so the lineup is looking strong.

ESPN is playing it coy on whether the College Football Championship is coming to streaming, which was likely a negotiating tactic.

There is a right and flexibility to do early-round games on direct-to-consumer streaming services, but as of now, no decision has been made on our side to even activate that right. A lot of this is future-proofing where the world goes over essentially eight years, and we feel really good about the flexibility we have, but in the near term, I don't think fans would expect to see much difference in terms of how the games are distributed broadly across traditional linear television.

Nick Dawson, ESPN

We can read between the lines and assume the College Football Championship will be streamed along with SEC football and basketball, which ESPN holds the rights for through the 2034 season.

Next up is the NBA, which has a rights deal with ABC/ESPN and TNT through the 2024-2025 season. I don’t think it’s a coincidence that Bob Iger delayed the ESPN over-the-top launch until 2025 when the next NBA rights deal will take effect.

And in the fall of 2025, we'll be offering ESPN as a stand-alone streaming option with innovative digital features, creating a one-stop sports destination unlike anything available in the marketplace today.

Bob Iger on fiscal Q1 2024 conference call

He wants to sign an all-encompassing deal with the NBA to bring content to ESPN streaming.

Having college football and the NBA would be a boon for ESPN over the top.

The NFL may be a little harder (and more expensive) to bring on board beyond the current ESPN Monday Night Football game. But we are seeing Disney’s strategy to build a sports streaming giant even Netflix would be hard-pressed to rival.

Disney’s Monoculture Opportunity

Over the next few years, you may find yourself going to Disney properties for water cooler content while Netflix becomes more obscure and random hits combined with old-school comfort content like The Office and Friends.

These are different business models playing out. Netflix is bringing a fragmented content market to a single platform. Disney is trying to offer high-demand single pieces of content that lots of people will watch, aka monoculture.

There’s room for both in the market.

As an investor, I think the bigger opportunity lies with Disney and somehow the market doesn’t see that.

By 2026, Disney will likely generate more revenue from streaming than Netflix (Q4 2023: $DIS @ $5.5B excluding ESPN+ vs $NFLX @ $8.8B) and may also be more profitable in streaming as this bundling strategy plays out. Yet, Disney is worth $50 billion less than Netflix today.

And don’t forget about the parks. A cool $9.5 billion in operating income and growing double digits so far this year, a business Netflix doesn’t have.

The monoculture may change as cable dies, but Disney will be at the center of it like it’s been for nearly a century. This time, Taylor Swift and college football may be the face of the franchise instead of Mickey Mouse.

That’s OK as long as Disney ends up with more scale at a higher price point than competitors, living in the top right corner of the smiling curve.

https://asymmetric-investing.beehiiv.com/p/disney-monoculture