Disney Made a Horrible Mistake

NEW YORK (TheStreet) -- I have discussed the landmark Netflix (NFLX)/Disney (DIS) deal quite a bit in recent days, but mostly from a Netflix standpoint. (Bookmark, Pocket -- whatever you do these days -- my article history to see the most recent coverage).

I haven't said a whole lot about the implications for Disney. That doesn't mean they're not interesting.

Even though the groundbreaking part doesn't begin until 2016 -- who knows what type of shape Netflix will be in at that point -- this is still big. Disney will provide first-run motion pictures to Netflix, an online streaming company, not a traditional premium pay-cable service.

In one respect, you can say it's all about Disney seeing the future: An on-demand world where "everybody" has Netflix streaming on their smartphones, tablets, computers and, maybe more importantly, their Internet-connected television sets. Sales of televisions that link with services such as Netflix continue to increase alongside streaming players like Apple (AAPL) TV and Roku.

And there's no question that Disney fleeced Netflix on this deal. It depends who you believe, but the estimates range between $200 million and $300 million per year. They could be higher.

To this point, content providers -- big companies such as CBS (CBS) -- bragged about padding revenue and juicing profits by only licensing Netflix (and Amazon.com (AMZN)) content scraps. In other words, small, leftover portions of their catalogs they could not monetize through advertising or other worthwhile means.

That started to change just a little as Netflix became a more important outlet for popular cable series such as Mad Men. Put a notch on the bedpost for the company here -- Netflix established itself as a driver of ratings for cable. You discover past seasons of a show through your streaming plan and start watching fresh episodes as they air on cable.

Disney takes Netflix to a whole 'nother level. If Netflix can duplicate this type of deal multiple times -- and stay solvent -- look out.

The dust needs to settle, but, at the moment, it's a bad move by Disney.

I prefer the Time Warner (TWX) approach: Do your own digital offering and, until you absolutely must open it up, make it available exclusively to cable and satellite subscribers. So, say, Listen, we're going to put these flicks on our new premium HBO-like channel, "Disney movies" (does that already exist?) and you can stream them if you subscribe. Disney can make sure the channel gets cleared in loads of households by using the ESPN franchise as leverage.

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