Disney to Pull Content from Netflix & Launch Streaming Service in 2019
ESPN will also be getting its own streaming service in early 2018.
Tuesday was a big day for Disney (NYSE: DIS). The entertainment and media company announced its third fiscal quarter financials for the period ended July 1, 2017, the acquisition of a majority ownership of BAMTech, and its plans for over-the-top streaming services for Disney in 2019 and ESPN in 2018. Though the Disney news is all related, we’ll tackle one topic at a time.
First, let’s look at the new streaming services Disney is planning. In early 2018, Disney will launch an ESPN-branded multi-sport video streaming service. The service will offer a range of sports programming; approximately 10,000 live regional, national and international games and events, including Major League Baseball, the National Hockey League, Major League Soccer, Grand Slam tennis, and college sports. Add-on packages may also be available for purchase like MLB.TV, NHL.TV and MLS Live.
According to an August 8 press release, the ESPN streaming service will be available through a beefed-up version of the ESPN app which will also include news, highlights and scores. Pay TV subscribers can also access the service after logging into their cable accounts or authenticating their identity.
“For many sports fans, this app will become the premier digital destination for all their sports content,” said Disney in the press release.
The noticeable exception, of course, is the National Football League.
Coming in 2019 will be a new Disney-branded streaming service, “the exclusive home in the U.S. for subscription-video-on-demand viewing” of Disney and Pixar films, including 2019 releases like Toy Story 4, the sequel to Frozen and a Disney live-action version of The Lion King. Disney also said it would make a “significant investment” in original movies, TV shows, short-form content and other Disney-branded programming, exclusive to the service. And now for the kicker…drumroll please…
“With this strategic shift, Disney will end its distribution agreement with Netflix for subscription streaming of new releases, beginning with the 2019 calendar year theatrical slate,” the release said.
It is not known if Netflix was notified before the official announcement.
Following launch, both the Disney- and ESPN-branded streaming services can be purchased directly through Disney and ESPN, in app stores and from authorized multichannel video programming distributors (MVPD).
To facilitate these streaming services, the Walt Disney Company has agreed to buy a majority ownership in BAMTech from MLBAM, the interactive media and internet company of Major League Baseball. Disney previously acquired a 33 percent stake in BAMTech. This new deal will give Disney an additional 42 percent stake for a mere $1.58 billion. BAMTech, a company that provides direct-to-consumer streaming technology and marketing services, data analytics and commerce management, will help Disney power its new SVOD services.
“The media landscape is increasingly defined by direct relationships between content creators and consumers, and our control of BAMTech’s full array of innovative technology will give us the power to forge those connections, along with the flexibility to quickly adapt to shifts in the market,” said Disney Chairman and CEO Robert A. Iger, Chairman and Chief Executive Officer.
“This acquisition and the launch of our direct-to-consumer services mark an entirely new growth strategy for the Company, one that takes advantage of the incredible opportunity that changing technology provides us to leverage the strength of our great brands,” Iger added.
BAMTech CEO Michael Paull also commented on the deal.
“This is an exciting validation of our team, its achievements and the customer-centric platform it’s built,” said Paull. “Yet, we’ve merely scratched the surface of what can be accomplished in a future where we combine Disney and ESPN’s world-class IP and our proprietary direct-to-consumer ecosystem.”
The acquisition is subject to regulatory approval, after which Iger will become chairman of the BAMTech board.
Also, on Tuesday, the Walt Disney Company announced its third fiscal quarter financials for the period ended July 1. Highlights include:
- Diluted earnings per share decreased 5 percent to $1.51, compared to $1.59 for the same period last year.
- Revenue for the quarter was $14.2 billion, virtually flat year-over-year.
- Media networks had the highest revenue at $5.9 billion, followed by parks and resorts at $4.9 billion, studio entertainment at $2.4 billion, and consumer products and interactive media at $1.1 billion. The biggest shift was studio entertainment revenue which had decreased by 16 percent year-over-year.
- Media networks revenue is divided between cable networks ($4.1 billion) and broadcasting ($1.8 billion).
- Hulu, which Disney has a stake in, is included in the segment operating income category. Hulu had higher marketing and labor costs which were partially offset by higher subscription revenue.
- Disney attributed lower a 23 percent decrease in operating income for its media networks due to a decline at ESPN which had higher programming costs, lower ad revenue, and severance and termination costs.
- Net income was $2.4 billion, compared to $2.6 billion for the same period last year.
While it is too early to tell, investors initially reacted negatively. As of 7:49 PM EDT on August 9 – the day after the financials and other news were released – stock was valued at $102.83 per share, down from $106.98 on August 8. This is still up, however, from where stock was priced at a year ago. On August 10, 2016, Disney stock was valued at $97.86.
Netflix fans are undoubtedly disappointed to hear that they’ll lose access to Disney films in 2019. However, they’ll have a couple of years to adjust to the idea. Disney is smart to make this move, to take advantage of its exclusive content. Streaming services that have a specific niche have shown they can be successful, and Disney already has a huge, built-in audience, so this makes sense. As for ESPN, we aren’t as convinced that will be a success. ESPN is already struggling in terms of ratings, content and talent. It needs to fix those problems before it can hope to get sports fans on board to buy their streaming package when they are already dissatisfied with the “free content” they get on cable now.
Overall, we believe launching the streaming services is a smart play for Disney. They recognize the media and entertainment worlds are changing, and they now own most of a technology company that can help them adapt and evolve more quickly.
The timing of the news was questionable though. Did Disney release its financials and the streaming service news to distract investors, or vice versa? Did they tell Netflix this was going to happen or were they simply concerned with their own interests? We are interested in hearing the details as they unfold.