Specialist
Former executive at The Walt Disney Co
Agenda
- Disney's (NYSE: DIS) operating environment – Q4 2021 and 2022 advertising supply and demand dynamics across linear, digital video and connected TV inventories
- Upfront vs scatter dynamics over the next 24-36 months – pricing and fill rate implications
- Role of DRAX (Disney Real-time Ad Exchange) – programmatic growth expectations and disintermediation potential for broader ad tech partners
- Connected TV competition – Hulu, Roku (NASDAQ: ROKU), YouTube and TV OEMs (original equipment manufacturers) – and Disney's market share potential
- Outlook for 2022 and beyond – Disney's longer-term ability to maintain wallet share of the overall advertising pie
Questions
1.
Could you outline the operating environment that Disney is competing in for advertising revenue dollars, highlighting the key trends or drivers across the next 2-3 years?
2.
Do you think linear decline will be exacerbated? It seems most recently the media is talking about the YouTube TV carriage negotiations that are getting contentious. Could that be the norm and make the balancing act more difficult?
3.
Is the global distribution side still working itself out? Roku has around two-thirds share of CTVs [connected TVs] in the US, but there are more global presences such as Android TV, which seems to be the frontrunner outside the US. How might that play out? What might that mean how much negotiating power the distributors will have over the programmers, at least in the early onset of this global streaming war?
4.
You mentioned the evolution of the need for proprietary ad platforms, with FreeWheel being the frontrunner. Do you think the goal of Disney and streaming platforms more broadly is to emulate what FreeWheel has? Alternatively, do you expect some nuance from Disney or others around how to continuously build out that ad platform?
5.
It was decided that Xandr would not be part of the Discovery-Warner Bros merger. Is that a function of Xandr just not coming anywhere near industry-leading standards in terms of that ad platform? Does Discovery perhaps think it has a better chance of further developing its own ad platform?
6.
It seems much of the need for an in-house ad platform is probably in tandem with a lot of the privacy and identity developments playing out across TV and more broadly in the digital sphere. What important developments are playing out that might define the next few years?
7.
How do you think about the data sources that are coming in, many of which are tied to the set box or the connected TV IP? Disney has over 100m Disney+ subscribers, though that’s still sub-scale vs Google and Facebook. How are you finding a balance between scale of data in terms of the inbound sources from the end users and the quality of the data coming in from a CTV standpoint vs what Google and Facebook can gather?
8.
Can you explain the build vs buy decision-making? In which areas of the adtech stack might it be worth tucking in some assets to build it out more vs actually proprietarily building it?
9.
What inning are we in on the path to Disney getting full control over the deployment and decision-making? The convergence of the Hulu ad engineering team seems to have been the first step. DRAX [Disney Real-time Ad Exchange] has come out. When might the company be ready to open the floodgates more to a full autonomy of the ad deployment?
10.
Do you think there is enough pace of development for a path forward in the next 5-10 years for the potential ad placement on an actual Disney+ app? I think a lot of it has to do with the exacerbated scrutiny around placing ads towards kids. There seems to be no rush on that – you want to have it done well. Do you think the path forward could be that early, or is it more of a decades-long trend, where maybe there are more ad opportunities for the more family streaming product?
11.
Do you think Disney is doing a good enough job trying to be as a four-quadrant brand-affinity product, where it resonates with kids, adults, males and females? How do you think that’s going from a content standpoint? The Beatles is a good example and even Marvel streaming shows seem to be increasingly four quadrant. How much more needs to be done with content to move those goal posts closer to be able to lessen the risk of advertising to a family?
12.
What handicaps might 2022 bring vs 2021 from an advertising revenue standpoint? We can talk about linear vs digital, genre by genre and the supply chain issues playing. Will Disney have as hard of a time reaching the sell rates that it might have had in 2021 as we try to find a balance between supply and demand?
13.
Krishan Bhatia from NBCU talks about digital and linear viewership levels being equivalent by the end of 2022. Is that more due to linear decline vs streaming growth? How positive of a trend should we actually consider that to be from a viewership standpoint?
14.
How challenging is it to maintain usage and engagement? How much more important is that than pure sub growth? Think about Hulu and ESPN+, maybe even Hotstar – where I think there’s probably a seasonal drag in engagement outside of the cricket season. The streaming marketplace is increasingly crowded and platforms now have to compete with gaming and social. How challenging might it become to reach a point of eclipsing peak impression levels, not just the user base levels, but also the time spent within streaming?
15.
Do you think Netflix is leagues ahead around A/B testing and recommendation engine capabilities? You mentioned discovery to drive a more immersive platform in a streaming system. How much can be solved through tech vs the need for more content? Do you think the Disney slate is still light when considering what is needed to drive that streaming churn lower?
16.
Does Hollywood Studios face an existential threat? There was a lot of press around Mr Beast, the real-life version of Squid Game that came out and got 150 million-plus views so quickly from around USD 460,000 content cost. Is that an existential threat in terms of Disney spending USD 30bn next year on content spend, but when you consider that on a per-episode standpoint, it still won’t be enough? How might dynamics such as the rise of user-generated content and creator economies impact how Hollywood needs to think about content output longer-term to remain relevant and engaged with users?
17.
Do you think there’s room to push linear ad yields higher through pricing or better ad placement to help offset ratings impression decline over the next 5-10 years? Is there more to do, particularly in sports, given the NFL is locked in until 2030?
18.
You suggested that a lot of CTV advertising growth won’t purely follow sub-growth because of factors such as engagement. What other bottlenecks could cause this lag between impression uptake in advertiser dollar flow through from linear to digital? What about measurement? What else might cause hesitancy for advertisers to pour into video in an OTT [over-the-top] world?
19.
What inning are we in around getting advertisers comfortable with a more digital setting for ad placement? How might that impact this upfront that’s driven so many ad dollars in TV historically, moving away from paying a CPM times an impression goal – alongside the potential for a makegood if those impression goals aren’t reached – to something much more fluid, real-time and open bidding?
20.
How might the mix of dollars allocated evolve upfront vs scatter across linear vs digital? It seems the linear scatter market has been non-existent lately, and a lot of the money is allocated purely through upfront. I have a hunch that the goal is to get digital towards something that’s 100% scatter-bought. How might that evolve as this transition continues over the next few years?
21.
How do you size the long-term CTV advertising total market opportunity? The main way that it gets talked about is shifting USD 60bn-70bn linear ad dollars that have sat in aggregate for TV buys over to something more digitally-oriented. There seem to be a few headwinds such as considering Disney+ and Netflix being ad free and driving a lot of viewership and engagement, lower ad loads per hour being a desire from the publisher and the consumer, and you suggested programmatic might eventually bring CPMs down.
22.
What might increase supply over the next few years? Is it more time engaged or is it more dynamic insertion of ads, where you can target at more of an individual base?
23.
To what extent have TV buys transitioning over been predominant ways to drive digital advertising? Do you think Disney can monetise more through digital and social means? How might that contribute? Could that move the needle to the advertising line item?
24.
What are your thoughts on Disney trying to grow its ad platform, with first-party owned and operated data being the main goal, but maybe data asset scale in general being important as well? It seems to be trying to do this through Disney Select, a clean room data solution that brands can actually put their own first-party data into to potentially improve targetability. Could there ever be a cross-publisher collaboration, where it’s not just Disney, but also companies such as NBC and Viacom wanting to collaborate increasingly and get to a data scale that is potentially improving the parity with digital social giants from a data standpoint?
25.
Do you think brands are interested in including their data into something that exists through Drax to lever up the targetability and scale touchpoints with end users? Alternatively, do you think there won’t be a democratisation between the brands and the publishers, Disney specifically?
26.
You mentioned there could be areas of the ad tech stack that you want to have in-house. How do you fit DSPs [demand-side platforms] and SSPs [supply-side platforms], primarily Magnite and The Trade Desk – from a premium video standpoint – into that? Is that an area of disintermediation risk over the next decade?
27.
Do you expect Magnite to be able to drive more optimal CPM on behalf of player such as Hulu for a while? To what extent is that the leading driver to why a company such as Magnite is worth remaining partners with, that they’re really the best at monetising these digital users relative to Disney and Hulu’s capabilities?
28.
How might TV-oriented advertisers think about take rates going to DSPs and SSPs? How does that impact publishers’ thought processes around whether to keep them in the fold? Do you think there’s too much advertising dollar slippage from dollar committed to dollar actually allocated because the fees that these other companies take will cause some downward pressure?
29.
Operating leverage appreciated in terms of the revenue probably continuing to grow at the clip it does, how quickly might it take to get to mid-single-digit fees on a dollar spend? Are we getting there more quickly than not? I think it’s mid-to-high teens currently for some players.
30.
Is there a considerable market share loss potential when we think about more players across the value chain competing for this CTV opportunity? If it gets to USD 60bn-70bn, could that be tougher for Disney to have the same share that it had linearly vs in the CTV environment when we compare all the publishers, including DSPs, SSPs, TV OEMs [original equipment manufacturers] and free AVODs?
31.
Metaverse seems to be the hype word as we get to the end of the year. How might increased engagement with Web 3.0 impact how content companies remain relevant? Do they need to diversify revenues more – Netflix doing shop and gaming – to avoid, as content output producers, increasingly becoming top of the funnel customer acquisition mechanisms for alternative companies vs players that can be relevant on their own?
32.
Is there anything else you’d like to highlight around Disney over the next 3-5 years?
