Disney Makes Strategic Shifts in Its Digital Content Streaming
Disney is branching out on its own in digital content streaming and separating from Netflix from 2019.
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Business decisions influence stock trading and investing decisions. It’s a known fact in stock market circles that Walt Disney ($DIS) has not been doing well lately. Its continued poor showing in the ESPN sports digital content segment has perhaps prompted it to make the groundbreaking decision to stop showing new movies on Netflix ($NFLX) from 2019 and instead come up with its own streaming service. It seeks to get a hold on digital viewers who are increasingly ignoring their television screens in favor of digital content on their mobile phones, tablets or laptops.
Decision Announced Amidst Poor Quarterly Results Disney’s decision was announced on Tuesday, August 8 along with the company’s quarterly results. Disney has reported a fall of nearly 9% in quarterly profit. Its Q3 revenue for the period ended July 1 had a marginal fall to $14.24 billion from $14.28 billion the year earlier. Net income that can be attributed to the company declined to $2.37 billion, translating to $1.51 per share from $2.6 billion, which is $1.59 per share. This is undoubtedly the result of its ESPN subscribers declining. Viewers aren’t particularly in favor of expensive cable packages. It indicated the continued pressure exerted on the company by the poor showing of its ESPN sports network. The company now believes that there can be more profit generated in the long run by running its own digital content subscription service and not rent its movies to other digital content providers such as Netflix.
Significant Investment Will Affect Earnings Initially At the Netflix camptoo there is an equally ardent desire to buy its own content and produce it, streaming it to its subscribers. This is the strategy followed by Amazon ($AMZN) and Time Warner’s ($TWX) HBO as well. The digital content streaming market is a pretty crowded space and, with Disney going on its own, it would need to bear the upfront and running costs of the technology. Analysts are expecting these costs to affect the company’s earnings. In after-hours trade on August 8, $DIS stock fell 3.8% while $NFLX shares fell 3%. www.tradezero.co
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New ESPN Service Disney’s streaming service will be following a similar ESPN offering available from 2018. This new ESPN offering will include around 10,000 live events and games from some of the major national sporting leagues such as Major League Soccer, Major League Baseball, National Hockey League, and others. But it won’t include the live sporting events being telecast on its cable channels.
The Logic behind Branching Out Disney believes having its own streaming service will give it more control over its future and destiny. CEO Bob Iger admits this is a totally new strategy for growth adopted by the company. But this strategic shift is essential if the company wishes to attain growth for its digital content service. Its new streaming services will be based on the BAMTech video-streaming firm’s technology. Disney is buying a further 42% stake in BAMTech for $1.58 billion. It already acquired a minority stake in the company last year. Disney believes the BAMTech deal could slightly affect its earnings per share for around two years. The end of the Netflixmovie arrangement means that Disney will be offering the much eagerly anticipated “Frozen 2” and “Toy Story 4” movies through its own service. However, a decision has not been made on distributing films from Marvel and Lucasfilm both owned by Disney. Globally, however, Netflix has maintained that it will be showing Disney content, even keeping the exclusive Marvel shows. In the United States, Netflix members will be able to enjoy Disney films on the service all through 2019. This will include new films shown in theatres all through 2018.
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