Walt Disney Co CEO Bob Iger is ready to embrace the cord cutter. Disney, the world’s largest entertainment company, outlined plans Tuesday to sell some of its premiere content directly to consumers online starting next year.
It is to offer live sports and animated films including Toy Story 4, sidestepping partners from Netflix Inc to pay-TV providers like Comcast Corp and DirecTV.
“If you look at Disney’s businesses, except for the theme parks, virtually all of the businesses touch consumers through third parties, everything from big box retailers to the owners of motion-picture theaters,” Iger said in an interview on Bloomberg TV. “This is an opportunity to reach the consumer directly.”
The need for Disney to act was underscored by the company’s fiscal third-quarter financial results, which were also announced Tuesday.
Sales and profit fell because of weakness in the company’s big cable TV division, especially ESPN, where subscribers and ad sales shrank.
Still, Iger’s decision shocked investors, sending shares of both Disney and Netflix lower in late trading.
Disney’s plans include a new online ESPN service next year that would broadcast more than 10,000 live sporting events, including major league baseball, hockey, soccer and tennis for what Iger called a “reasonable” monthly fee.
In 2019, the company is to launch a Disney video service, featuring live-action films, Disney Channel TV shows and Pixar movies.
In the process, the Burbank, California-based company said it is ending a deal to offer its newest films online through Netflix, the video-streaming pioneer. That will stop in 2019.
Iger said consumers are moving rapidly online and Disney needs to move with them.
Shares of Disney fell 3.8 percent to US$102.92 in extended trading. Netflix, which is losing a key supplier, was down 4.6 percent to US$172.95.
Iger, 66, has shown a willingness make big bets in the past. To revive the company’s flagging film business, he spent US$15.2 billion over almost a decade buying a trove of movie ideas: Pixar Animation, Marvel Entertainment’s cast of comic superheroes and Lucasfilm’s Star Wars franchise.
Now, he is focusing on Disney’s biggest business, television, where cord cutters and cord shavers threaten two crucial sources of revenue — advertising and subscriber fees.
In the third quarter ended on July 1, Disney reported a rare drop in sales and profit.
Earnings at the company’s TV networks slumped 22 percent amid higher-costs for sports programming, as well as a drop in subscribers and weak ad sales at its flagship ESPN channel, the company said.
While profit of US$1.58 a share beat analysts’ estimates, revenue declined slightly and missed projections.
“We looked at the sub losses of 3 percent as the high end,” Edward Jones analyst Robin Diedrich said in an interview. “We’re not seeing the tailing off that we expected. This is continuing to happen.”
The immediate fallout for Netflix looks minimal, though investors may fear other Hollywood studios will move against the company and further restrict what they sell to the online service.
Netflix is to spend more than US$6 billion on programming this year, much of it from other media outlets, and has a long term budget of US$15.7 billion, with a significant portion dedicated to the company’s own original productions.
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