MAGIC KINGDOMS NIGHTMARE
Disney’s New Plan
Walt Disney Co’s plan to launch its own digital movie and sport services means the world’s largest entertainment must learn how to attract streaming video subscribers and keep them hooked in a highly competitive market. In a major strategic shift, Disney announced Tuesday it would launch a sports-themed ESPN streaming service next year followed by a similar offering with Disney and Pixar movies and television shows in 2019. While many analysts praised the effort’s long-term goals, uncertainty about Disney’s ability to make up for lost revenue from Netflix and other sources worried investors. Disney shares closed down 4 percent on Wednesday.
“While this will be a negative headline for Netflix, we expect the actual impact on the subscriber base to me minimal,” wrote Piper Jaffrey analyst Michael Olson in a note to investors. “There is no question Disney content was nice to have, but we believe Netflix can find ways to re-allocate roughly $200 million annually to create similarly engaging content for its subscriber base.”
For Disney, however, it could be too little, too late, according to BTIG analyst Richard Greenfield. In a blog post following Disney’s announcement, Greenfield lambasted the strategic steps the company and its Chief Executive Robert Iger have taken. Greenfield is expecting Disney to lost up $2 billion a year as it foregoes third-party and invests heavily to build up content and start a streaming service from scratch. “Disney’s announcement was light on details and did not sound terribly well hashed out. The announcement appeared designed to distract investors from Disney’s weak earnings and disappointing forward guidance,” Greenfield wrote. “Disney simply waited too long to make this critical decision.
Most believe Disney needed to respond to the migration of viewers from pay-TV packages to digital options sold a la carte, a shift that has hurt the company’s cash cow, ESPN. But Disney will encounter new hurdles selling directly to consumers. The company has relatively little experience with selling subscriptions, although it does operate a digital service in Britain called Disney Life.
It will also have to invest in technology. As part of the plan announced on Tuesday, Disney said it would spend $1.58 billion to acquire majority ownership of BAMTech, the company that streams professional U.S. baseball and will provide the tech powering the new streaming services. Disney will stop providing new movies to Netflix starting in 2019. At the time, the deal was announced in 2012, analysts estimated Disney would reap roughly $350 million a year from Netflix. They had better come up with some magic.
Keep those stops tight
Todd “Bubba” Horwitz
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