How Disney's international streaming strategy takes a page from Netflix's playbook

• Disney launched its general-entertainment service Star in some international markets on Tuesday.
• Disney is ramping up its international streaming strategy as Netflix ramps up originals outside the US.
• Industry watchers have different perspectives on what Disney's strategy means for the US-based Hulu.

With Hollywood upended by the coronavirus pandemic, Disney -like other media companies - has prioritized its streaming ambitions. And it's taking a page out of Netflix's book to meet its long-term goals.

The company launched its general-entertainment Star brand (which started in India) in Australia, New Zealand, Canada, and Europe on Tuesday as a new tile in the Disney Plus app. Last week, it announced had commissioned 10 European titles for Disney Plus and Star.

Disney commissioning a string of local originals when entering new territory is a change in strategy, and is similar to what Netflix has done. For decades, Disney has positioned itself as an entertainment leader across the world with its beloved IP, mainly through theatrical movies and theme parks. It has primarily exported Disney's US-based franchises to the world. Disney Plus' early strategy mostly followed its tried-and-true playbook, but now the company is looking beyond its well-known IP like Marvel and "Star Wars," as it expands both its Star brand and slate of local originals.

Disney expects to hit 300 million to 350 million subscribers worldwide across its several streaming platforms by 2024, reflecting the company's confidence in its streaming growth. Disney Plus itself already has more than 95 million subscribers worldwide.

Netflix has already grown into a global streaming powerhouse with more than 200 million users worldwide. It's done so in part by buying or producing international movies and TV shows, from the British "Bodyguard" to the French "Lupin."

63% of upcoming Netflix original TV shows that have been announced are international titles, according to the research firm Ampere Analysis.

"There's a degree to which they'd be competing, but it's more about them facing the same market dynamics," Ed Border, a research director at Ampere Analysis, said of Netflix and Disney.

Experts weigh in on Hulu's future

Disney's expansion of Star, however, raises big questions about Hulu.

Hulu, which has 39 million subscribers in the US, is nowhere in Disney's plans outside the US.

Disney took full operational control of Hulu in 2019 after it acquired many Fox assets, including its stake in the streaming service. The company projects it to reach 50 million to 60 million subscribers by 2024.

But the ability to get to the high end of those projections "may not exist" without international support, Joe McCormack, a media analyst at the research firm Third Bridge, told Insider in December ahead of Disney's investor day.

At this point last year, Disney had actually planned to roll out Hulu beyond the US. The new CEO, Bob Chapek, had said in a February 2020 earnings call that the expansion would begin by 2021.

But a couple of factors likely contributed to Disney's reversal:

• Comcast still has a 33% stake in Hulu until 2024, at which point Disney can buy based on a third-party assessment of Hulu's market value. If Hulu becomes more valuable, Disney will pay more.
• Hulu has "no brand awareness outside the US," Chapek said in an August 2020 earnings call.

"Nobody in Europe knows what the f--- Hulu is," a former Hulu executive told Insider in December (he requested anonymity to protect business relationships).

Star will stream many Hulu exclusives outside the US, such as FX originals and content from a recent deal with the Kardashians.

But industry watchers have different perspectives on how Disney's plans for Hulu will evolve over time.

Steve Nason, the research director at the research and consulting firm Parks Associates, said that Hulu's future is "very much up in the air."

The biggest potential danger Hulu faces, according to Border, is if more licensed content leaves. For instance, NBCU has the option of ending licensing deals with Hulu starting in 2022.

But Border said that Hulu provides Disney the opportunity to balance its mature content that it inherited from the Fox deal with the more all-ages content found on Disney Plus. And Ampere Analysis projects Hulu to reach about 52 million subscribers in the next four years.

"Hulu has a strong brand in the US," Border said. "If Hulu continues to be a big earner, Disney wouldn't want to damage the balance between the two platforms. But if Hulu starts losing subscribers, Disney could shift strategies."

Disney is entering Netflix's arena

As Disney grows its streaming business outside the US and it becomes a bigger part of its revenue, it will tailor more of its content to international subscribers - just as Netflix did. Disney is already ramping up development of international originals for Disney Plus and Star.

That means that Disney and Netflix's strategies will align more. Border noted that Disney Plus grew rapidly in the US and aggressive expansion is the logical next step.

To sustain its growth, Netflix has invested heavily in international markets, whether by acquiring international titles and branding them as Netflix originals, or producing its own titles outside the US.

Of Netflix's original movies and shows that it commissioned, produced, or funded itself, 40% were international titles as of December, according to Ampere Analysis. Of its original shows and movies that it bought from other distributors, 52% were international titles.

Of upcoming original content that Netflix has announced:

• TV shows: 37% US, 63% international
• Movies: 62% US, 38% international
• Total - 50% US/50% international

"Commissioning content from local hubs gives Netflix a springboard into non-US markets as that becomes an increasingly bigger customer base," Border said.

"Disney is just entering the same world Netflix has been in," he added.