Disney sees a future without Netflix

Woody from Disney's Toy Story.

Disney, the world’s largest entertainment company, has outlined plans to sell some of its premiere content directly to consumers online.

Starting next year, it will offer live sports and animated films including Toy Story 4, sidestepping partners from Netflix to pay-TV providers like Comcast and DirecTV, chief executive officer Bob Iger said.

“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. This is an opportunity to reach the consumer directly,” the 66-year-old said.

The need for Disney to act was underscored by the company’s fiscal third-quarter financial results, announced this week, and helped send shares tumbling 6%, the most since February 2016.

Sales and profit fell because of weakness in the company’s big cable TV division, especially ESPN, where subscribers and ad sales shrank. Nevertheless Mr Iger’s decision shocked investors, sending Disney and Netflix shares lower.

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 Mr Iger called a “reasonable” monthly fee.

In 2019, the company will 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. That will stop in 2019. Consumers are moving rapidly online and Disney needs to move with them, Mr Iger said.

FBR Capital Markets analyst Barton Crockett said Disney’s new digital strategy could weigh on both Disney and Netflix.

“We see this as negative for Netflix. More options for the consumer have to limit Netflix’s pricing leverage and constrain its market opportunity as some consumers might be happy with Disney for online entertainment, instead of Netflix,” he said.

Mr Iger has shown a willingness to make big bets in the past. To revive the company’s flagging film business, he spent $15.2bn (€12.9bn) 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.

The immediate fallout for Netflix looks minimal. It will spend $6bn on programming in 2017 and has a long term budget of $15.7bn.

Bloomberg


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