The Walt Disney Company, under extreme pressure to address threats to its vast television business, unveiled its answer on Tuesday: two Netflix-style streaming services.
“I would characterize this as an extremely important, very, very significant strategic shift for us,” Robert A. Iger, Disney’s chief executive, told analysts on a conference call to discuss quarterly earnings. Underscoring the need for Mr. Iger to reposition his company for growth, Disney reported a slight decline in revenue and a 9 percent drop in net income.
The two still-unnamed streaming services — one built around sports programming from ESPN, the other on Disney and Pixar movies and television shows — will be powered by BamTech, a technology company that handles direct-to-consumer video for baseball teams and HBO, among others. Disney paid $1 billion a year ago for a 33 percent stake in BamTech. On Tuesday, Mr. Iger announced that Disney had accelerated an option to spend $1.58 billion for an additional 42 percent share.
Disney’s move online could put the company in conflict with Netflix, which will lose access to new Disney and Pixar films, and with cable providers, which pay Disney handsomely for the right to distribute ESPN and other channels. Mr. Iger said Disney had not yet talked to cable providers. He added, however, that he had “all the confidence in the world” in Disney’s ability to maintain favorable deals with them.
The ESPN streaming service will arrive early next year, Mr. Iger said. It will include baseball, hockey, tennis and college sports — about 10,000 regional and national events in its first year. Users will be able to access the service through an enhanced version of ESPN’s current app, which includes news, highlights and scores. People who pay to receive ESPN the old-fashioned way (via a cable or satellite provider) will be able to access standard ESPN programming through the same app.
Mr. Iger said Disney had lately noticed “a dramatic increase in app-based media consumption,” and not just for its own offerings.
Disney will also offer a separate entertainment-oriented streaming service. (With traditional cable hookups, people are usually forced to pay for sports channels even if they do not watch them.) It will arrive in 2019 and provide exclusive access to new Disney films, including a sequel to “Frozen,” a live-action version of “The Lion King” and “Toy Story 4.” (Netflix currently has rights to new Disney-branded films; Disney will take back those rights.)
The Disney-branded entertainment service will also include a vast amount of library content, including movies and television programming from Disney Channel, Disney Junior and Disney XD. Mr. Iger said that Disney would also make a “significant” investment in original movies and shows for the service, which will not include advertising.
Mr. Iger said that Disney had not decided whether to include films from its Marvel and Lucasfilm (“Star Wars”) labels, in part because of their different fan bases.
“It’s possible we will continue to license them to a pay service like Netflix, but it’s premature to say,” he said. “There has been talk about launching a proprietary Marvel service and ‘Star Wars’ service.” He added, however, that Disney was cautious about stand-alone services for those film brands, in part because a large amount of content would be needed to satisfy subscribers.
Disney declined to say how much subscriptions would cost. Mr. Iger said the goal was a price low enough to encourage widespread adoption but not so low that it would cannibalize traditional cable and satellite subscriptions. In the past, Mr. Iger has hinted about a “dynamic” model, with viewers able to pay based on how much they want to watch.
In some ways, Disney is late to this party. CBS, for instance, introduced a direct-to-consumer subscription streaming service in 2014. But Disney is a media superpower, and its decision to aggressively pursue streaming could speed the entertainment industry’s adoption of the platform.
“No one is better positioned to lead the industry into this dynamic new era,” Mr. Iger said, noting his company’s trove of popular content and unrivaled connection to its audience — particularly children, who are a huge driver for streaming services.
Most analysts responded favorably, but Disney’s stock price declined 4 percent in after-hours trading, to about $102.95. The reaction might have been better had Disney not simultaneously reported lackluster quarterly results. Netflix shares declined more than 3 percent after hours, to $172.53.
For the last two years, as the cable business has dealt with a loss of subscribers, Mr. Iger has not been able to convince investors that ESPN, the company’s longtime growth engine, will keep chugging away. As Wall Street has continued to fret, Disney has found itself at the center of speculation about ways to keep its programming relevant in the online age. Some suggested it should buy Netflix outright or consider selling itself to Apple.
Meantime, cord-cutting continues to affect ESPN. Traditional subscriptions declined 3.5 percent in the most recent quarter; in the year-ago period, ESPN had a 2 percent decline.
For its fiscal third quarter, the company had a profit totaling $2.37 billion, or $1.51 a share, compared with $2.6 billion or $1.59 a share, a year earlier. Disney had revenue of $14.2 billion in the quarter, down slightly from a year earlier.
Adjusting for a one-time charge related to a legal settlement, Disney had per-share earnings of $1.58 in the most recent quarter. Analysts had expected $1.55.
Among the biggest challenges for Disney in the quarter were costs at ESPN, which recorded about $400 million in incremental expenses because of a new contract with the National Basketball Association. As a result, operating income at Disney Media Networks, which includes ESPN, fell to $1.84 billion, a 22 percent decline.
Expenses also increased at Walt Disney Parks and Resorts, which opened an attraction in Florida based on “Avatar” and brought one of the Disney cruise ships in for refurbishment. But the theme park unit nonetheless reported an 18 percent increase in operating income, to $1.17 billion, because of the timing of the Easter holiday and improved results at overseas parks, including Disneyland Paris.
Disney’s movie studio had a difficult quarter. Its operating income fell 17 percent, to $639 million, because of a lineup of films that could not match last year’s highs. In the most recent quarter, Disney released “Cars 3,” “Pirates of the Caribbean: Dead Men Tell No Tales” and “Guardians of the Galaxy Vol. 2.” In the year-ago quarter, the studio’s blockbusters included “Finding Dory,” “The Jungle Book” and “Captain America: Civil War.”
“I would characterize this as an extremely important, very, very significant strategic shift for us,” Robert A. Iger, Disney’s chief executive, told analysts on a conference call to discuss quarterly earnings. Underscoring the need for Mr. Iger to reposition his company for growth, Disney reported a slight decline in revenue and a 9 percent drop in net income.
The two still-unnamed streaming services — one built around sports programming from ESPN, the other on Disney and Pixar movies and television shows — will be powered by BamTech, a technology company that handles direct-to-consumer video for baseball teams and HBO, among others. Disney paid $1 billion a year ago for a 33 percent stake in BamTech. On Tuesday, Mr. Iger announced that Disney had accelerated an option to spend $1.58 billion for an additional 42 percent share.
Disney’s move online could put the company in conflict with Netflix, which will lose access to new Disney and Pixar films, and with cable providers, which pay Disney handsomely for the right to distribute ESPN and other channels. Mr. Iger said Disney had not yet talked to cable providers. He added, however, that he had “all the confidence in the world” in Disney’s ability to maintain favorable deals with them.
The ESPN streaming service will arrive early next year, Mr. Iger said. It will include baseball, hockey, tennis and college sports — about 10,000 regional and national events in its first year. Users will be able to access the service through an enhanced version of ESPN’s current app, which includes news, highlights and scores. People who pay to receive ESPN the old-fashioned way (via a cable or satellite provider) will be able to access standard ESPN programming through the same app.
Mr. Iger said Disney had lately noticed “a dramatic increase in app-based media consumption,” and not just for its own offerings.
Disney will also offer a separate entertainment-oriented streaming service. (With traditional cable hookups, people are usually forced to pay for sports channels even if they do not watch them.) It will arrive in 2019 and provide exclusive access to new Disney films, including a sequel to “Frozen,” a live-action version of “The Lion King” and “Toy Story 4.” (Netflix currently has rights to new Disney-branded films; Disney will take back those rights.)
The Disney-branded entertainment service will also include a vast amount of library content, including movies and television programming from Disney Channel, Disney Junior and Disney XD. Mr. Iger said that Disney would also make a “significant” investment in original movies and shows for the service, which will not include advertising.
Mr. Iger said that Disney had not decided whether to include films from its Marvel and Lucasfilm (“Star Wars”) labels, in part because of their different fan bases.
“It’s possible we will continue to license them to a pay service like Netflix, but it’s premature to say,” he said. “There has been talk about launching a proprietary Marvel service and ‘Star Wars’ service.” He added, however, that Disney was cautious about stand-alone services for those film brands, in part because a large amount of content would be needed to satisfy subscribers.
Disney declined to say how much subscriptions would cost. Mr. Iger said the goal was a price low enough to encourage widespread adoption but not so low that it would cannibalize traditional cable and satellite subscriptions. In the past, Mr. Iger has hinted about a “dynamic” model, with viewers able to pay based on how much they want to watch.
In some ways, Disney is late to this party. CBS, for instance, introduced a direct-to-consumer subscription streaming service in 2014. But Disney is a media superpower, and its decision to aggressively pursue streaming could speed the entertainment industry’s adoption of the platform.
“No one is better positioned to lead the industry into this dynamic new era,” Mr. Iger said, noting his company’s trove of popular content and unrivaled connection to its audience — particularly children, who are a huge driver for streaming services.
Most analysts responded favorably, but Disney’s stock price declined 4 percent in after-hours trading, to about $102.95. The reaction might have been better had Disney not simultaneously reported lackluster quarterly results. Netflix shares declined more than 3 percent after hours, to $172.53.
For the last two years, as the cable business has dealt with a loss of subscribers, Mr. Iger has not been able to convince investors that ESPN, the company’s longtime growth engine, will keep chugging away. As Wall Street has continued to fret, Disney has found itself at the center of speculation about ways to keep its programming relevant in the online age. Some suggested it should buy Netflix outright or consider selling itself to Apple.
Meantime, cord-cutting continues to affect ESPN. Traditional subscriptions declined 3.5 percent in the most recent quarter; in the year-ago period, ESPN had a 2 percent decline.
For its fiscal third quarter, the company had a profit totaling $2.37 billion, or $1.51 a share, compared with $2.6 billion or $1.59 a share, a year earlier. Disney had revenue of $14.2 billion in the quarter, down slightly from a year earlier.
Adjusting for a one-time charge related to a legal settlement, Disney had per-share earnings of $1.58 in the most recent quarter. Analysts had expected $1.55.
Among the biggest challenges for Disney in the quarter were costs at ESPN, which recorded about $400 million in incremental expenses because of a new contract with the National Basketball Association. As a result, operating income at Disney Media Networks, which includes ESPN, fell to $1.84 billion, a 22 percent decline.
Expenses also increased at Walt Disney Parks and Resorts, which opened an attraction in Florida based on “Avatar” and brought one of the Disney cruise ships in for refurbishment. But the theme park unit nonetheless reported an 18 percent increase in operating income, to $1.17 billion, because of the timing of the Easter holiday and improved results at overseas parks, including Disneyland Paris.
Disney’s movie studio had a difficult quarter. Its operating income fell 17 percent, to $639 million, because of a lineup of films that could not match last year’s highs. In the most recent quarter, Disney released “Cars 3,” “Pirates of the Caribbean: Dead Men Tell No Tales” and “Guardians of the Galaxy Vol. 2.” In the year-ago quarter, the studio’s blockbusters included “Finding Dory,” “The Jungle Book” and “Captain America: Civil War.”
