Disney’s iconic character Mickey Mouse (Source).

Will the next Mickey Mouse please stand up?

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If you had to pick a single icon to represent America’s collective childhood in the 20th century, it would undoubtably be Mickey Mouse. Walt Disney’s original cartoon character has been reinvented from generation to generation and forms the core IP of one of the world’s largest content businesses. On the occasion when Disney has lost the zeitgeist of the younger generation, it has righted the ship nearly every time. M&A is the 94-year old company’s fountain of youth:

  • 2001: Fox Family Network (named ABC Family, now Freeform)
  • 2001: Saban Entertainment (owners of the “Power Rangers”)
  • 2004: The Muppets
  • 2006: Pixar
  • 2009: Marvel
  • 2012: Lucasfilm (owners of “Star Wars”)

Disney’s struggles in kids TV, however, may be a different story. The WSJ reports below that Disney’s two TV properties focused on kids — The Disney Channel and Freeform — have each lost 4 million subscribers over the past 3 years. Cable revenues account for 30% of Disney revenue and 26% of profits. Analysts estimate that 26% Disney’s cable business comes from its kids channels, with the remainder from ESPN (which has its own problems).

The decline of Disney’s kids TV offering appears to be an annoyance today, but could be a sign of a deeper struggle in the near future. Cord cutters are being replaced by “cord nevers.” Zero TV households, still a relatively small segment of the market, are most common in the 25–34 age range. The adults running these households have children in Disney’s TV prime age demographic. Growing up in a household like this, a kid won’t have the chance to build relationships with Disney characters. Sure, she’ll see them on the big screen, but that weekly or daily cadence of shows is an important driver of familiarity with Disney IP. Instead of plopping down in front of the TV for Saturday morning cartoons or TGIF family programming, little girls and boys will hop on the internet via their parents’ iPad or iPhone and stream digitally native content.

Disney isn’t fighting a battle for kids on a single front. Streaming services provided by Netflix and Amazon will double down on kids’ offerings and original content. YouTube will continue to crank out kid-friendly UGC and semi-pro content from creators like Smosh, Lizy Koshy, Lilly Singh, and Ryan Higa. Twitch will continue to dominate eSports voyeurism. Snapchat has already begun offering original content inside its Discover tab. There’s simply an explosion of compelling content on digitally native platforms, where kids already spend most of their leisure time.

Disney’s response will likely be on two fronts. First, it will launch its own streaming service targeting skinny bundles, focused on kids. Second, it will ratchet up the production value of its kids offerings. Cloak and Dagger, a relatively obscure Marvel Comics IP, seems to be the first such offering:

If Disney moves fast enough into both new distribution and content, it may stand a chance at winning back the kids, but I wouldn’t count on it. I’d bet instead on new entrants into the kids’ content world. These new players will build natively for digital distribution (YouTube, Snap, Musically, etc) and will offer content that fits more modern tastes. If there will be a 21st century Mickey Mouse, we’ll likely meet him in the coming decade.

“Disney’s Channels: Children Are Tuning Out” (Link)

Even though Disney Channel is considered a relatively costly channel for cable companies, it doesn’t command the large subscription fees that ESPN does.
Also at stake for Disney is the exposure its TV channels offer for toys, clothes and other products that the company relies on for hundreds of millions of dollars annually in revenue.
As consumers “cut the cord,” Disney’s once fast-growing cable business has slowed down. According to the company, cable revenue was flat and operating income was down 6% in the first half of the current fiscal year. That has alarmed Wall Street.

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