Disney’s IP bank is its ultimate superpower which it needs to double down on investing in hybrid IRL success

Disney’s annual shareholder meeting has confirmed that its management team, led by streaming and IP visionary Bob Iger, remains firmly in control of the media major’s destiny by thwarting Nelson Peltz’s push to acquire a board seat. Since January, Peltz’s activist investor fund has been for a position on the Disney board. Yesterday that was rejected. Adding to the drama in the build up to the announcement was tech maverick Elon Musk’s assertion that he would invest in Disney if Peltz was on the board. While Peltz has an enviable track record for turning around ailing businesses, his original argument that Disney should ditch its low margin and currently loss-leading streaming business to renew its focus on film and linear TV was an attempt to turn back the clock on 17 years of video streaming adoption. 

However, in betting the proverbial ranch on streaming, Iger was playing the ball to where the market was inexorably shifting and leveraging Disney’s most important assets to do so: its IP bank. 101 years of animation, film, and TV creation alongside the savvy strategic acquisitions of Pixar, Marvel Studios, and Lucasfilm, has created globally relevant IP that has stood the test of time. This will only become more important as the next wave of media fusion disruption occurs courtesy of Apple’s Vision Pro and Meta’s Quest. As MIDiA calls out in its forthcoming report on the impact of the Apple Vision Pro on entertainment, IP will become a key differentiator as entertainment goes mainstream via augmented reality / virtual reality (AR / VR). Globally sustainable brands build up over years, and Disney owns cornerstone brands across sci-fi and fantasy, animation, children’s entertainment, and family-friendly genres.

The IRL powerhouse behind the IP bank

Peltz’s reactionary power play is right in one key area: Disney will not make it as a streaming service alone. Its Experiences segment, which includes its theme park division and the Disney Cruises line as well as consumer products, accounted for 38% of group revenues in Q4 2023, growing 7% year-on-year and increasing operating income by 8%. This contrasts with the Entertainment segment which contracted 7% over the same period in revenues and a staggering 100% in operating income.

MIDiA predicted post-lockdown that the renewed surge of in real life (IRL) experience demand would be matched by a sustained elevated demand for digital entertainment, resulting in the hybrid future models of combined digital / IRL entertainment. The Apple Vision Pro has now been launched ostensibly as an AR tool, with the capability to leverage its see-through display to complement IRL experiences with digital enhanced functionality – think theme park rides with customised Disney IP skins overlaid over friends and family or easter eggs in IRL buildings that can only be revealed through AR. We are only at the beginning of this experience fusion, and Disney’s heavy IP and theme park investments make it optimally placed to deliver mainstream offerings in hybrid IRL. 

With D2C growth slowing from 6% in Q3 23 to 2% in Q4 23, and MIDiA forecasting a near negligible growth rate for 2024, Disney urgently needs to find the synergies across its business units that will drive future growth rather than retreat to reactionary sunset business models that are becoming niche consumer activities.

If Disney can get this right, then it will dominate the newly evolving entertainment space. Get it wrong and the institutional drift will reassert itself and outsiders will once again have an opportunity to decide Disney’s destiny.