‘There’s a Lot Required and They’re Late’: Disney and Netflix in the Metaverse

Photo: Frank Zauritz/Getty Images
Matthew Belloni
July 14, 2022

I’m sorry, but at this point, if you don’t at least know the basics of what the Metaverse is—or what it will be, or what Mark Zuckerberg, Tim Sweeney and other tech moguls are betting billions of dollars hoping it will be—you probably shouldn’t be in the What I’m Hearing community. If not, though, how’s this for a mouthful: “A massively scaled and interoperable network of real-time rendered 3D virtual worlds that can be experienced synchronously and persistently by an effectively unlimited number of users with an individual sense of presence, and with continuity of data, such as identity, history, entitlements, objects, communications, and payments.”

Got it? That’s from Matthew Ball’s new book, The Metaverse: And How It Will Revolutionize Everything, and it’s just a fancy way of summarizing the next iteration of the internet: an immersive, video-game-like virtual world where everyone will congregate to do normal life stuff: run errands, argue about Donald Trump, and be entertained. That last part carries big implications for Hollywood, of course, some of which I discussed with Matthew last October. Since then, there’s been a ton of movement on the topic: Disney has begun involving top content executives in its Metaverse plans, I’m told, and just today, the company announced a group of Metaverse-related startups will participate in its accelerator program. Netflix, at the same time, has been investing heavily in gaming, which some believe is a precursor to whatever Netflix’s Metaverse play might be.

It was enough to make me want to talk to Matthew again. So on the occasion of his new book (out July 19, pre-order it here), I got the investor and former head of strategy for Amazon Studios back on a Zoom to discuss Disney’s failures in gaming, how an immersive Star Wars will feel, and Netflix’s tough road ahead. Highlights from our conversation have been edited for clarity and length.

Matt Belloni: When we talked in October, you said the challenge of creating content for the Metaverse—like, say, an experience that is additive and complements the Star Wars films and TV shows—is how to tell a story in a “bidirectional environment.” That’s like walking around on Endor or Tatooine, right?

Matthew Ball: That’s part of it, but “bidirectional” is really about giving agency and input to the user. This is a complicated idea, but… if Disney puts out an adjacent [Star Wars] experience yet says that nothing that the two Matts do matters, then that’s kind of disempowering. That’s not too “directional.” The big question is how do you have what the players are doing have some representation in the canon at large? That’s a challenge.

So there’s an impact on the Star Wars story beyond just the stakes of the video game, is what you’re saying.

I’ll give you an example. I’m a producer on a content experience that launched yesterday on Facebook Watch. It’s called The Walking Dead: The Last Mile. Now, The Walking Dead was the most popular show on all of television for eight years. And this experience is co-authored by Robert Kirkman, the creator. He has said that it’s canonical to the comic book franchise, but it allows the audience to produce their own avatars or zombies, place them into a living, persistent world, and while you don’t run the game, you aren’t the star, you can shape what everyone does. So this is a narrative unfolding that Robert designed. You participate canonically, and influence who wins and what people do.

How are the traditional content companies doing as they prepare for the Metaverse?

Depends on the company assets and the hands they were dealt. I’ll give a good example. We know that when [former C.E.O.] Jason Kilar came to Warner Media, there was a different perspective on the retention of gaming assets that had been put up for sale. They started doing tests where they would work with Google Stadia—this was Google’s cloud game streaming service—to white label their tech, so that anyone could play their incredibly successful and critically adored Batman series via video stream. If you’re playing it from a video file with no console, there’s no reason why that can’t be streamed into the HBO Max app. And if you take a look at [current Warner Bros. Discovery C.E.O. David Zaslav’s] perspective, he’s saying everything goes through this platform. So you see the capabilities unique to Warner of gaming—critically, financially, and with audiences.

But then we look at more recent rumors that [the gaming assets are] back on the chopping block. The debt load is clearly requiring changes there. So we may see a company that’s closer to bringing everything together than anyone else, but can’t execute on it. Disney, of course, lacks gaming, but is really rich in interactive and game engine experiences.

Disney has kind of punted on gaming. You’ve said this was Bob Iger’s biggest mistake as C.E.O. Disney’s gotta be in gaming, right?

I would be more critical than “punted.” Punted is, “We’re gonna solve it later.” What Bob did—that’s a rejection. The question is, will Bob Chapek, needing to carve a different lane from his predecessor on a product [Disney+] that was launched by one of his competitors, Kevin Mayer, recognize that they need the opposite perspective? Not “We’ve tried and failed, and let’s not do it again,” but “We cannot fail, and we will keep trying until we achieve success.”

We saw Comcast recently went after Electronic Arts, as my colleague Dylan Byers reported. Disney’s accelerator program participants are all Metaverse-oriented companies, and it seems like Disney now wants to go this direction. Do you think Chapek will make a splash and acquire something big in the gaming space?

We should recognize the lineage. We just talked about some of the failures. What is called the HTML of the Metaverse—this is a format called USD—was created by Pixar and open sourced. Epic Games, makers of Fortnite and the Unreal engine, were early participants in the Disney accelerator, when it was valued at less than a billion. It’s now a $32 billion company. They were the first company to really embrace virtual reality production for The Lion King, as well as virtual production for The Mandalorian and others [with ILM]. The Disney theme park experiences widely deploy the Unreal engine. So they have this real tech ability, which frankly extends to Imagineers and the designs of the parks.

Will they make the bet? Look, I think the stock price makes that hard. They’re the worst performing Dow company. They’re down nearly a half. They’re still facing cash constraints. They’re trimming the budget on Disney+. There’s skepticism whether they can meet the [subscriber] target that Chapek outlined in December 2020. But I do think they’re trying to figure out what that bold, multi-billion dollar—potentially tens of billion dollar—bet would look like.

And it would potentially benefit many different areas of the company.

One way to frame it is to compare what’s really expensive and really easy in video versus gaming. What’s the easiest thing that you can film? Two people talking in a room. What’s the hardest thing to film? A battle scene in New York City. Gaming is the reverse. It’s pretty easy to make a model of a city street and to have pretty complex graphics of fighting and cars blowing up. What’s brutally hard is to have two people talking in a way that passes the uncanny valley. We’re at this intersection where we start to be able to pull off in film and TV, at very low cost, very complicated environments with extraordinary customization. Dropping the cost while maintaining quality and flexibility is an extraordinary [value] unlock.

Do you think Netflix will be a legitimate gaming player? And is this a stepping stone to a virtual environment where Netflix members will eventually become part of a Netflix Metaverse?

They launched streaming in 2007; they launched the Netflix originals brand in 2009. Their first licensed original, Lillihammer, was 2011. Their first co-produced original, House of Cards, was 2013. In 2015 came their first solely produced Netflix original, Marco Polo. By 2018, half of their spend was on originals. That was a really long journey. I would expect a similar time horizon for gaming.

But will they eventually be a major player?

When you take a look at their slow build, who they’ve hired, the expertise in AR/VR, and the fact that those subcategories aren’t ready for prime time, suggests to me that they see this as a multi-decade endeavor. Reed [Hastings] has always been focused on leisure time. And frankly, ascendant though gaming might be, it is dwarfed by video.

Can they be successful? It’s really hard. They’re used to playing first where their thesis is not just ahead of everyone else, but really the only party playing it. They’re also not used to fighting far better-capitalized companies until, frankly, a decade or two into that conquest. They lack many of the things needed. They don’t have micro-transactions. That’s in almost all of the most successful games globally. They don’t have multiplayer—also the most successful games. They don’t, frankly, have any of the backend required for social experiences.

There’s a lot required and they’re late. They’re probably under-capitalized. It’s gonna be hard.

And they don’t have that sky-high stock price to go out and buy stuff.

Netflix is obviously very stressed right now. For 15 years, the degree of their execution was extraordinary. The most significant mistake, or at least missed opportunity: You could’ve bought up Paramount, Electronic Arts, Ubisoft, and whomever else for value that doesn’t exist anymore in their enterprise value.

What’s the actual total addressable market for Netflix?

I don’t think a billion is crazy. Why? Because we’ve got about 750 to 800 million pay TV homes [minus China]. That number goes up 20 to 30 to 50 million per year. There’s five and a half billion people who watch two and a half to five hours of TV per day. That is an addressable market. What’s the realizable market? Without sports, without live, without deep cultural ties in some markets like India, you’re probably looking at less than 500 million—and that’s execution dependent. 

Netflix theme park: Will it happen?

Not in any practical sense. Maybe a Metaverse theme park.