William Geffen

The Tech Disrupters: Cars, Frozen and deep data. How Disney became a tech titan

William Geffen

We made a new addition to some of the Liontrust Global Equity funds at the start of October: Disney, the conglomerate known for Mickey Mouse, elaborate theme parks and cartoon musicals. You’ll be aware of Disney’s proliferation and, if not, this fantastic graphic demonstrates just how vast the empire is.

But what makes Disney a suitable addition in a world of disruptive technology?

To best understand and explain Disney’s tech opportunity we can look at two important, and related, technological projects that Disney has embarked on.

The Tech Disrupters: Cars, Frozen and deep data. How Disney became a tech titan

Disney+

In November 2018 chairman and chief executive Bob Iger announced the future launch of its much-speculated DTC streaming service for Disney. This marked Disney’s foray into the so called “streaming wars”. It’s a war we have previously stayed out of, but we believe Disney’s offering represents a truly unique opportunity. While Disney will forgo the steady, generous fees it currently gets for licensing out its properties to TV and streaming services, it has the potential to become the most lucrative DTC offering out there thanks to two key reasons: its IP monopoly and its data.

On IP, Disney doesn’t need to ramp up expenditure and build a studio and franchises from scratch, it already has a collection of successful studios and, most importantly, all the IP you could want. This includes Marvel, Star Wars, Pixar, Fox, as well as all the Disney classics and Disney animations. They released 12 of the 20 highest grossing films of the last decade and now have the rights over a 13th (Avatar), slated to have four more follow up films. This IP means Disney already has the range of unique offerings and track record that rivals will have to spend years and many billions of pounds to compete with.

Getting source data from customers directly is beneficial both for tailoring its product to your customers’ tastes and needs, but also to yield advertising opportunities. Just ask Facebook and YouTube (owned by Google parent company Alphabet).

Forgive me two brief anecdotes which I believe demonstrate why Disney’s opportunity here is greater than its predecessors and rivals.

The first comes from YouTube and its problem with kids. Kids love watching YouTube and, frankly, YouTube loves kids, as they have the time and attention to watch videos, driving up views on the platform (videos aimed at kids are some of their most viewed). On top of this, their views are the most lucrative to sell to advertisers, due to their appetite for merchandise and games, susceptibility to marketing gimmicks and their inability to tell advertisement from reality. Due to strict laws on collecting and selling children’s data, however, YouTube was forced to create a new app, called YouTube Kids, to avoid accidentally showing inappropriate content to minors, or harvesting their data for third parties.

The riches still available in getting content on the children’s platform, however, led to video creators playing the algorithms to get their videos onto the kids’ app. This led to a series of scandals including videos of super heroes and Disney princesses doing inappropriate pranks or even going on a gunning spree.

The second observation comes from looking at one of Disney’s franchises, Cars. Cars was a very mediocre film that was met with little enthusiasm and grossed a very average (for Disney!) $462m. Disney, however, produced two sequels with similar box office figures. Why?

While the first film only grossed $462m (and the Cars franchise $1.4bn total), Disney announced in 2011 that is had pulled in a fat $10bn from Cars merchandise on the first film alone. The films aren’t about box office returns or even DVD sales. They are, in fact, a big advertisement for a collection of toys that kids went crazy for.

The point where these two tales come together is that for Disney, the film is the advert. They have no need to sell that data to third parties for advertising as they are the ones who will best use that data and insights gleaned from it. They can use the lucrative data to not only tailor the Disney+ experience to each user, but also to inform future content creation, as well as illuminate merchandising opportunities to their enthralled young viewers.

So if your child watches Frozen 20 times a week on your Disney+ account then, at some point around Christmas, assuming the repeated lyrics of “Let it Go” haven’t caused you to have a breakdown, you may well receive an email from Disney informing you of a new Frozen themed land at Disneyland, the upcoming release date of Frozen 2 (22nd of November by the way) and an offer on the latest Elsa doll. In your sleep deprived, and troubled state, you will be relieved to have one fewer gift to worry about.

The MagicBand and My Disney Experience App

If you visit Disney World in Orlando, as I admittedly have recently, then you will quickly find there are two new essentials on top of the usual walking shoes, sun cream and Mickey ears.

These are the MagicBand wristband and the My Disney Experience app. Both are synced up at the beginning of your trip for you and your family and allow you to do literally everything. The MagicBand is equipped with a short-range tracker, or “RFID”, and can be used at the ticket gate, as a room key, for making frictionless payments and generally “touching in” in interactive areas around the parks. The long-range RFID allows the band to be traced around the park with such accuracy that Disney will automatically upload ride photos to your account as it knows which ride carriage you were on and when. If you ask how this works, they rather cynically reply with one word – “Magic”. This doubles up with the app that allows you to manage any reservations (including your room), see a map with all the current wait times in each park, order food and even reserve places in lines. The parks have full Wi-Fi coverage along with Bluetooth sensors that link up with the app, again allowing Disney to track your every move and increase accuracy.

This means Disney has literally thousands of precise data points on millions of yearly theme park attendees. They have data on everything from exact movement/locations, to purchases and even photos. Disney no longer has to guess how best to expand and streamline their parks (as well as other offerings), instead they are now an omniscient, omnipresent and omnipotent God to the 10s of millions who walk through those magic gates each year.

The common theme here is data. Disney has begun to fully embrace and adopt technology that will allow them to not only collect data in all areas of its business but also to leverage that data in a more effective way than any other company, without the need to sell it to third parties. I believe this will allow Disney to go from a loosely-connected collection of film/tv studios, merchandise shops and amusement parks into a fully cohesive, constructive and collaborative media company for the modern world.

 

Key Risks

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in funds managed by the Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.

Disclaimer

The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Tuesday, November 19, 2019, 9:29 AM