TV’s Ad Apocalypse Is Getting Closer

Disney announced on Tuesday that it will stop selling content to Netflix by 2019 and will instead launch two streaming services—one with sports content from ESPN (which it owns) and another for movies. It is a dramatic announcement with far-reaching implications for the future of television and, pulling back the lens even farther, the U.S. tech and media landscape.

Before getting to the future, let’s start with the present of television. Pay TV—that is, the bundle of channels one can buy from Comcast or DirecTV—is in a ratings free fall among all viewers born since the Nixon administration. Since 2010, the time that Americans under 35 have spent watching television has declined by about 50 percent, according to Matthew Ball, the head of strategy at Amazon Studios.

As a result, Disney’s cable-television business, once the crown jewel of the company, is now weighing down its stock. Where are its viewers going? Many have decamped for streaming services like Netflix, where the number of hours of video entertainment consumed has grown by about 700 percent in the same time.

This has created a business crisis for entertainment companies like Disney. Old Disney’s television strategy was: Focus on making great content and then sell it to distribution companies, like Comcast and DirecTV. This worked brilliantly when practically the entire country subscribed to the same television product. For example, when Disney sold its goods to Comcast, it stimulated demand for the cable bundle, which meant more people had access to ESPN, which meant ESPN’s advertising revenues soared, which meant Disney profited. Thanks to virtuous cycle of bundling, separating content and distribution used to be the obvious play for Disney.

But New Disney is looking for a fresh play. Now that young households are cutting the cord, it wants to own both content and distribution. Netflix once famously said that it wanted to be HBO before HBO could be Netflix; that is, to become a great content company before HBO could become a technology company. With this week’s announcement, Disney is declaring that it wants to rival Netflix, as a streaming competitor, before Netflix can rival Disney, as a prodigious content-owner and rights-holder.