Volte-Face: Challenges in International Streaming for Disney and Viaplay
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The collapse of Viaplay’s international ambitions still strikes me as one of the more remarkable volte-face’s in the recent history of media. Since establishing itself prior to the pandemic as the only meaningful non-US-based company aiming to build a global streaming business, Viaplay stood out to me as a great example of the pursuit of growth through investment in big strategic ideas. When they began their efforts, there were many growth tailwinds supporting their business and then some initial successes in Poland and the Netherlands.
However, after launching in the UK late last year and then in the US and Canada early this year came a surprise: the company announced in July it would be “implementing a new operational model; downsizing, partnering or exiting our other international markets; rightsizing and pricing our product offering in the Nordics; undertaking a major cost reduction programme; and conducting an immediate strategic review of the entire business to consider all options including content sublicensing, asset disposals, equity injections or the sale of the whole Group.” The company stated its content investments were not paying off and that its subscriber growth came “at the cost of value” and that its “international expansion assumptions…have also been pushed materially into the future.”
The news today that it is rescheduling the release of earnings “pending the conclusion of ongoing discussions with three of the Group's largest shareholders, its debt providers and bondholders regarding the potential recapitalisation of the Group, and the completion of ongoing discussions regarding potential sales of non-core international operations and potential partnerships in various of its markets” was possibly unsurprising, but nonetheless caused the stock to fall another 17% - for a total 90% decline since May, and by more from the 2021 peak.
My general take on the situation was that there was likely from inception a significant mismatch between the assumptions around how much capital – or ongoing access to capital – would be required to support necessary growth to build up the scale required to compete at a sustainable level. While such a mismatch might have been harder to anticipate in 2019, there should have been a time during the pandemic where, presumably, after initially expanding abroad the company could have seen its unit economics more clearly than prior to launching international markets. That would have been the ideal time to raise significant capital and manage expectations around the need for more of it in order to realize Viaplay’s ambitions.
However, this outcome does not mean there won’t still be opportunity for new pan-regional or global streamers to come into existence. Every time I’ve tried to look for data around this topic, I have found a strong relationship between spending on content and consumer viewing of that content. Although skilled programming selection and content procurement efforts are important, as are all of the other operational elements of a streaming service, at the appropriate scale there will be a profitable business to be had for another company to pursue a stand-alone general entertainment or entertainment-plus-sports-based streaming service.
Such reversals of strategy and failures to anticipate negative commercial outcomes or capital requirements are not contained to small companies, of course.
Coincidentally there was also news this week that Disney is now close to selling its business in India. In some ways, this news is even more mind-blowing. A strategic center-piece of the acquisition of 20th Century Fox’s entertainment assets in 2018, during Bob Chapek’s inter-regnum the company failed to secure digital rights to IPL cricket, subsequently leading to many subscriber losses and revenue declines for its streaming business there. And now reporting from Bloomberg states that Disney may sell most of its stake in the India business with a high single digit billion dollar valuation. Although Disney may be finding itself in need of a near-term cash infusion ((given the likely much-higher-than-planned valuation that could be ascribed to Hulu as Disney and Comcast resolve ownership of that asset), any believers in Disney’s global strategy and the long-term growth benefits that might follow from exposure to under-developed media markets might have hoped for another way forward for India.
I would argue that in neither case did the companies need to feel forced to make the choices they did. Some will say shareholders demanded them, but I would argue that it’s more accurate to say that when shareholders demand reversals away from solid strategies, they do so in lieu of persuasive sustained arguments from a company’s management about the long-term benefits of a given strategy. If a management team doesn’t have conviction in their strategy (and especially if their assumptions were consistently unrealistic), investors won’t have any conviction in the strategy either.
As I have seen in stock markets and elsewhere, a strong vision – if it’s based on a solid foundation of research and insight – consistently applied to the deployment of capital will generally pay off in the long-run, and the right investors will generally be supportive.