Numlock Sunday: Julia Alexander on The Mouse

By Walt Hickey

Welcome to the Numlock Sunday edition. Each week, I'll sit down with an author or a writer behind one of the stories covered in a previous weekday edition for a casual conversation about what they wrote.

This week, I spoke to Julia Alexander, a writer for The Verge who’s appeared regularly in Numlock and who also writes a really interesting newsletter about Disney called Musings on Mouse. Here's a recent time she appeared in the newsletter:

Disney announced their $200 million tentpole would-be summer blockbuster Mulan will be released on Disney+ in countries where movie theaters are unable to open, by which they mean “The United States.” Mulan will be available to rent for $29.99 on September 4 through the app, on top of the $6.99 subscriber fee. In countries where Disney+ is unavailable, Mulan will hit theaters. They also announced another eagerly-awaited delayed 2020 film — Black Widow — will stick to its release date of November 6 by a similar pattern. They also said something about The New Mutants, but I stopped listening at that point, because it had to do with New Mutants.

Julia’s work is particularly fascinating this year because the Disney company has developed into something else entirely over the course of the pandemic, undergoing an enormous strategic shift that had been planned to take about five years over the course of one. It’s a fascinating company in a normal year, but incredibly interesting in one like this.

We spoke about what’s going on in the Magic Kingdom, how a gigantic cultural force got bigger than ever, and what’s happening with streaming, not just in the U.S. but worldwide.

Julia can be found at The Verge and Musings on Mouse.

This interview has been condensed and edited.

Julia Alexander, you write a newsletter called Musings on Mouse and you are a reporter at The Verge covering all sorts of different kinds of media and entertainment. I guess I'll just kind of start very broadly, which is what do you find interesting about the company Disney?

It's such an interesting question because if you asked me this a few years ago, I would've just said the content they produce. That's where I came in. I started off as an entertainment journalist and basically Disney was always Disney, but by 2013 to 2014 the MCU was really beginning to be established, they had purchased Star Wars, Pixar was still Pixar, but Disney kind of came out as this unstoppable force. In more recent years, as someone who transitioned to covering how the entertainment industry and what we think of media intertwined, it really became apparent that Disney was this conglomerate that touched every single important part of that world. Whether it was their media networks division, that's Monday Night Football on ESPN, or now this year, it's the FX lineup. And then of course their studios, and then Disney Channel originals all link to streaming.

And what they're kind of doing in that space with Disney Plus, with Hulu, with ESPN Plus, with what they're doing internationally, it kind of struck me as Disney feels like an under-covered company, which almost sounds ludicrous because it's Disney. No one outside of media reporters and specific business reporters who had Disney as their beat at the Wall Street Journal, at The Post, at The Times, were paying attention to this company. It was seemingly one of the few companies where it's like, "Oh, they have a lot of power."

To end this long rant to answer your question, I think when it really hit a lot of people was 2018 and 2019, the moment Disney became inescapable. It's inescapable in the theater industry that it's controlling, it's inescapable as a streaming service now, it’s inescapable on your television set from ABC to FX to ESPN. For me, it was something that needs more than just every three months, every two months, every month a report coming of what Disney's doing. What I wanted to do was just kind of follow all of it, because there are extremely good beat reporters who will cover ESPN, who will cover Disney as a movie company, who will cover Disney as a media company, and I just kind of wanted to put it all in one spot.

There's only a few companies that are like this, where they are almost nation states in and of themselves. You see this with like Amazon, where people came to comprehend what that company had assembled top to bottom, owning everything from IMDB to AWS to their retail store. But Disney is no different, I think the moment that it really hit me as you're kind of alluding to is when I realized that Disney owns It's Always Sunny in Philadelphia now.

It's interesting, I think we've gotten to a really good point in mainstream discussion of conglomerates where we understand tech conglomerates. We understand Amazon and Apple and Facebook. On the other side of it, we understand telecoms. We understand AT&T and Comcast. We get that as well.

Disney is a really interesting example where it's not in the tech realm really, and it doesn't own a telecommunication system at all. But it's still this massive empire — especially in the United States, but also around the world — that touches upon everything and exists in all of those different pipelines. I think it's so easy to kind of write Disney off as just as entertainment company because that is what they mostly specialize in, but they are also arguably the best company when it comes to theme park attractions, they operate in nearly every single country, and even from a policy level, they're one of the few companies that does have a close relationship with the Chinese government.

It was really interesting to see when the Mulan stuff happened and it got a lot of critical press — as it should have, that's something that people should bring attention to — I had this moment where I was like, Disney's worked with China for years, they had to work with the Chinese government to get the theme parks open, they had to work with the Chinese government to get certain movies over there. And now it kind of feels like we're paying attention to Disney in a really critical way. We spent time with Apple critically, we spent time with Facebook being critical, now it's like, what about Disney? This is a company that is in every kind of zone. As somebody who's like still newish to the space myself a few years in, it's been really fun to kind of see even veteran reporters who weren't covering Disney kind of go, "Disney, we should pay more attention to what's happening with Disney."

When I was at FiveThirtyEight, it was owned through ESPN, which is owned by Disney. So by the transitive property, we were castmembers. But one thing that I always got a kick out of there was that Disney had aggressively for years avoided being the person who was directly charging your credit card while still benefiting from that, like ESPN got a ton in carriage fees, but they were never the cable company, who you didn't like, directly charging you. Now you've increasingly seen that change, to the point that DTC is such a big deal to them, so much so they did a big reshuffling this week. In general, how has Disney evolved from that point of being a company that was deliberately discreet about where the money was coming from to one that's made it a centerpiece now?

That's a really great observation. I think that is absolutely the question, and it's something that's forced Disney's hand.

I think Disney would have loved to have just kind of been the theatrical giant for the next few years, I would think Disney would have loved for Disney channel to have remained the number one kids network. And their hands were forced, they realized aside from Marvel and Star Wars, for the content that they have, people aren't necessarily going to theaters and they're not necessarily going to keep cable. Those customers were going to Netflix for general entertainment. Those customers were going to Amazon and waiting a month or two or three after the movies came out because they didn't really care. They were willing to wait. They'd rather watch it at home.

Disney's shift to direct to consumer and going all in was something that we would have seen happen over the next five to six years, but as with everything in the pandemic, it's just been accelerated. They had to do it now. If we were going to break down Disney's revenue over the last year, it's only direct to consumer, because every single other vertical's been hit. Theatrical has been hit, their TV networks have been hit by advertising problems and content delays and production delays. Their parks business is obviously floundering right now. Cruises are basically out of the question. You can go through each one, all of them, and there's a problem here because of the pandemic. The one area that was going to grow anyways, even without this, but was just forced to grow faster was streaming. And it feels like what we're seeing is Disney figuring out on the fly what works and what doesn't.

So, if we look at the reorganization, my read from that was basically, we want to get rid of the middlemen, we want to give power to our heads of content from your Alan Horn down to your Kathleen Kennedy. They can go, “this makes sense for Disney Plus, we can invest in creating a little universe here" or "We can invest in making this a two or three or four times a year situation," and then choosing which of their projects they can bring to theaters in a few years that they know are going to make $1 billion, $1.2 billion, $1.3 billion dollars and are worth the investment. What we're seeing happen is basically the top executives at Disney going, “we have to kind of give them the control to shape up what that is going to be," with the primary focus on growing out Disney Plus.

If we think about projects that Disney really likes, but they couldn't bring or they tried to bring to theaters and they really failed, that's your McFarlane, USA, that's your Queen of Katwe. Those really didn't do well at theaters, so they stopped bringing them to theaters. But those movies might do well on Disney Plus and bring in subscribers and reduce churn because they just need content. And if they can do that, then Disney continues to win, because Disney Plus becomes a super profitable business in however much time it takes. What we're seeing was just their public affirmation or public confidence in something that me and many of the reporters were hearing about behind the scenes, which is this very fast shift to realizing where their majority of revenue was going to come from for the next little while and that's DTC.

This is a company with a very large international footprint, this is a company that is increasingly trying to be DTC, and you wrote a really great post earlier this year about how Disney is doing something really interesting in India with Hotstar. Do you want to go into a little bit about that? This is a big slice of this company that people do not necessarily know exists, but could very well be laying the groundwork for a lot of the future of digital media, is kind of what I took away from this.

Disney purchased Hotstar when it was moving into India, thinking, “we need to exist in this territory, it's a massive territory, it's a territory where people are streaming and they tend to stream more on mobile." And so Disney comes in and instead of trying to just launch Disney Plus from the ground up in India, Disney goes, “we're going to purchase this company and increase our subscribers tenfold overnight.” What they do in India, which is really interesting at the time, is they decide we're going to take a few Bollywood movies that are really popular — that Disney owned the rights to via Hotstar, which Disney had also acquired — and we're going to release them directly through Disney Plus Hotstar, and we're going to charge a certain amount of money, it worked out to be the equivalent to what Disney Plus introduced to the people around the world as premier access of Mulan.

This idea being you could watch this on our subscription service if you just pay a little extra. It's an interesting concept, and whether or not it worked with Mulan, we'll see. But it's an interesting concept because in India, it hyper-targeted a very specific form of entertainment that is extremely popular in that country. They had a whole slate of how they were going to do this and then how they're going to kind of get past the issues in theatrical release right now. When Disney releases something via Disney Plus they get a higher cut if people purchase it through them. Even if people purchase it on their Apple TV device, their Roku device, Disney is still going to take a higher cut of that overall revenue than they would get through theaters. And at a time when they're trying to figure out would this beat work as a theatrical exclusive or would this work as something we can just bring to Disney Plus, I think we're going to see them continue to experiment. This is something we could charge 20 dollars for and maybe make a decent amount more here than we would get at theaters, and we keep theaters to 10 to 11 movies that are just our blockbusters that are going to do extremely well, your Avengers, your Star Wars, your annual Pixar movie.

It's an interesting thing that they're trying to figure out. It's going to take time. Mulan had a bunch of issues before it came out, I don't think Mulan had the hype that a lot of other movies might have that people would have spent money on. Bob Chapek, the CEO, says it was a one-time thing, just to get them through, an experiment. I think they wanted to see if there could be return on investment through that. And I think we'll see it happen again. I don't know whether that's in the next six months or the next year, but I do think that Disney wants to control what we call the premium video on demand window as well. And that means offering exclusively through their streaming service. Why this is important is because it also reduces churn, and this is the biggest issue with streaming services. Netflix, for example, has very low churn. It's there, but it's low, which means that people aren't canceling their subscriptions. They're continuing to subscribe. Part of that is because Netflix releases 50 to 60 new movies, new seasons, new shows every month, there's 50 to 60 titles. So, if you're opening Netflix, there's something new you're going to want to watch, you end up keeping your subscription.

Disney Plus — partially because they've been hit by the pandemic, partially because they're still new — does not have that as much. They've been trying to figure out how to bring people in, and they're really relying on families subscribing so kids can watch Frozen 2 over and over again to keep those subscriptions. Going forward, if they can find ways to sell something that people are willing to buy and then those people have to keep a subscription for three or four months in order to continue to watch that movie, and the movie is maybe something like a Frozen 3 or whatever it is, where it's something that families would buy and they would keep watching. That's the way for them to reduce churn, make a little extra revenue on top of subscription fees and build a subscriber base in a way that is going to help them turn that revenue into profit.

What you're describing is kind of an interesting question for me, because you've only really mentioned Disney Plus there, whereas they do also own Hulu. Is anything going to happen with them?

It's an excellent question. I wrote a newsletter I think that was basically called, pardon my French, but What the fuck is Hulu? What is their plan for it? Because for a long time, we were told Hulu is going to expand internationally, up until I believe right before Iger stepped down. I think that would have been the last earnings call, which I think was in February of this year, maybe even late last year. He was like, "Our plan is to expand Hulu internationally to 2021, that's the goal."

Then in one of the more recent Disney earnings, Bob Chapek goes, "No, we're not expanding Hulu. We're launching a new service called Star and that will effectively kind of be like a Disney Plus meets Hulu offering." In the sense that it's things Disney owns, so it's not third party content, but it's not just Disney. It's ABC and FX and a bunch of other things. It's an interesting predicament because how much can you expect Hulu to grow if Hulu doesn't grow internationally? It's already at I believe 32 or 33 million subscribers. In the States, once you hit 50 million, 60 million, there's not that much more room to grow. People who want to have it are probably going to have it by that point.

Which is not to say that you can't continue growing — Netflix is doing it, Amazon does it — but once you hit 50 or 60, it slows down quite a bit. I just don't know what their plan for Hulu is. For a period I thought they might try to turn it into their version of HBO, because we saw the FX on Hulu initiative, they seemed like they want to bring prestige programming to Hulu. I want to say Hulu is one of my favorite streaming services, I genuinely I use Hulu and HBO Max more than anything else, just because the content offering is extremely good in terms of what you were getting for what you paid for. But I think what Hulu is going to be for Disney is kind of the bundle version, where you buy the bundle because you're going to get Hulu. Because if Disney Plus is really for kids and families, which I know that they keep saying it's not, but let's be honest, it is, with the exception of Marvel and Star Wars. With the exception of that, Hulu really is your general entertaining platform with more adult stuff.

And so if you're a 35 year old and you've got a two-year-old at home or a four year old at home, you buy Disney Plus because you want them to be able to watch kids shows all day while you're working. But you get the bundle because you would like to watch whatever the next FX show is. You want to re-watch It's Always Sunny or whatever's happening, you want to watch on Hulu. So you get the bundle because you're like, "Hey, I'm also going to get ESPN Plus on the side, maybe I want to watch a soccer game on Saturday."

And I think that is what Hulu is for Disney going forward. I think it's just the sweetener. It sweetens the deal and they're going to invest in it from an FX standpoint to continue making it a sweeter deal. But it's pretty clear even from their most recent reorganization and the way they wrote about in the press release that Disney Plus is really what they're trying to sell. Disney Plus is where they see their future. And I think that's in part because Disney Plus is based on the franchise tent poles that Hulu isn't. But I don't think Hulu is going away. They're going to continue investing in it. And I think Hulu will just be a sweetener.

One last question for you about all this is what should people be looking forward to over the course of the next year? I know that their parks business has been taking a huge hit. But you also mentioned, they have a huge exposure on cruises. What are you looking at over the next couple weeks, couple months when it comes to where this corporation's going outside of the streaming realm?

The thing that immediately comes to mind is right when the pandemic started and things looked like they were going south in the United States, I always link it back to when the NBA stopped. Because for me that felt like America as a whole was like, "Oh God, this is a thing now." Which was March 11th. There was a public document filed from Disney that essentially said we can't predict what's going to happen because we can't predict even when this ends what consumer behavior is going to look like.

And I think that's key to understanding the core of Disney's bigger businesses because let's say the pandemic ends in two months, there's a vaccine, it works, people go out and they can go back to their own lives, are people going to feel comfortable sitting in movie theaters shoulder to shoulder and someone coughing? Are people going to feel comfortable sitting on a roller coaster at a theme park where they're not being wiped down after every single ride, where there are packed people and there's a lot of kids running around and coughing? And that something that's hard to predict.

So I think what they're hoping for is there will be an immediate kind of turn up in people in attendance at these things because people are so tired of being stuck inside. My read on it is well, yes, business will obviously increase because of that reason. It's going to take some time before people really feel comfortable again going back to life in the way that we think of the before times. What I think that means for Disney, what I'm looking at in countries where they have a better grasp on the virus, because they don't have a government that can't get it together, how does that affect the parks?

How are people reacting to going back to those parks? Are they going en masse? And if they aren't, why aren't they doing that? So I think of the attendance at Disneyland Paris, Disneyland Tokyo, Shanghai Disney. You're going to be looking at those quite a bit. And I they're going see how that turns out.

The other one that pops into my mind immediately is the theater business. If, hypothetically, every movie scheduled to come out next year came out next year, there's a major blockbuster every single week. Because every week it's a Disney movie, a Warner Brother's movie, a Sony movie. They're all super hero movies or giant epics. And that sounds great for us because we want good movies, but it is a hellscape for Disney, which is used to owning the theatrical calendar because they could release a movie every two months, and they knew they would control it for about two or three weeks.

Now, if Disney has to compete with not only themselves, but with every other major movie that is just trying to find space, it's not going to be as great for their theatrical business as they may have hoped. Black Widow maybe goes from being a one billion dollar movie opening to making $800 million and that's not a terrible thing. It's still profitable, but it's not a billion. And so I think Disney's business to watch is they're going to slowly rebound, and that's when streaming comes in. Because while they're slowly rebounding, Disney needs something to kind of push things faster so they can point to things for investors and go, "This is doing a thing, it's building. We're going there. We're figuring it out. We're going to divert more content to accept, going to keep people subscribing while people are still figuring out if they even want to go out." I think that's what I am looking at: one, consumer behavior in countries where things are better under control of how they're reacting and how Disney's going to parlay that into their own business and two, how Disney is thinking about its own theatrical calendar and that competition on top of things like streaming, where they divert resources to. Those are the two areas that I'm most interest in.

Next year is nuts. Tom Cruise is going to be as many movies as Nic Cage. It's going to be a catastrophe and it's going to be amazing.

Where can people find you? Where can people find the newsletter?

Yeah. If you want to read specifically about Disney, my newsletter is Musings On Mouse on Substack.com. It's free. There is no plans to charge at any point, so it'll remain free. And if you just want general thoughts on streaming, including Disney, but also everything Plus or everything Max, whatever the suffix is, you can find me on The Verge.

---

If you have anything you’d like to see in this Sunday special, shoot me an email. Comment below! Thanks for reading, and thanks so much for supporting Numlock.

Thank you so much for becoming a paid subscriber!

Send links to me on Twitter at @WaltHickey or email me with numbers, tips, or feedback at walt@numlock.news.