Disney: A Magical Rival to Netflix

Disney CEO Robert A. Iger recently announced Netflix-style streaming services.

After a reported 9 percent drop in net income and a slight decline in revenue, it became apparent to Robert A. Iger, Disney’s chief executive, that a drastic shift in strategy was needed. Disney announced two unnamed streaming services, one based upon Disney and Pixar films along with Disney channel programs, the other based upon sports using programing from ESPN.

Both services will be powered by BamTech, a direct-to-consumer video known for work with HBO and other established streaming services. Last year Disney paid $1 Billion for a 33% stake in BamTech. Recently Mr. Iger announced that Disney would pay $1.58 Billion for an additional 42% share in the company.

Disney’s switch to an online outlet seems likely to lead to conflict with Netflix, who currently has access to many Disney and Pixar films and television shows, as well as cable providers who pay Disney for access to ESPN and related networks. Iger feels that Disney is able to maintain favorable deals with them.

While the switch to an online streaming service may seem late compared to other companies such as CBS, Iger feels that they are making the jump at the perfect time as they have “an unrivaled connection to their audience- especially children, who are a huge driver for streaming services.”

Disney’s first proposed streaming service is set to arrive in early spring 2018 and will include sports, such as baseball, hockey, and tennis as well as college sports for a total of about 10,000 regional and national events in the first year. The service will be accessed through an updated version of the current ESPN app, consumers of ESPN on cable or satellite will also be given access to the app.

A separate streaming service will arrive in 2019. Disney has announced that this service will provide direct to consumer access to both old and new Disney films such as the upcoming “Frozen” sequel, “Toy Story 4” and the live-action “Lion King”. Disney typically does not make its movies available for long periods of time, instead relying on “The Disney Vault,” the idea that Disney will release a movie for a limited time and then not sell the film until it is re-released years later.

This new streaming service would change Disney’s formula of releasing content by making everything available to subscribers. This drastic change could cause harm to Netflix, who currently has rights to new Disney-branded disney films. Disney plans to take these rights back eventually.

The new service would not only feature films, but also all current and future television programs found on Disney Channel, Disney Junior, and Disney XD would be made available. Iger states that Disney will make a “significant” investment in original movies and shows for the service, much like many other services such as HBO and Netflix have done in the past.

Disney, who also owns labels such as Marvel and Lucasarts (Star Wars) has decided to include these labels in their service as well. However, shows currently produced by Disney Marvel studios such as “Jessica Jones” will still be available on netflix.

Disney will no longer be releasing new content to theaters. Instead, new films will be added directly to the proposed streaming service. An idea that seems detrimental to the success of movie theaters as Disney films typically bring in a large profit.

The amount that subscribers would have to pay for these services is still up in the air. Mr. Iger has discussed perhaps focusing on “dynamic format” almost seeming like a pay-per-view system in which the consumer will pay based on how often they use the streaming service.

Despite analysts responding well to the proposed service, Disney’s stock price declined 4 percent to about $102.95. This could have been the result of poor quarter results, however it is apparent that Disney is facing difficulty keeping its programming relevant as traditional subscription for ESPN continues to decline (3.5 percent in the most recent quarter).

Disney’s financial decline seems to come from several sources. Disney Media Networks (ESPN) reported a 22 percent decline in operating income after a new contract with the National Basketball Association. Disney’s studio also reported an operating income decline of 17% due to a this year’s set of released films not being as successful as the previous years.

Could this new approach to media that other companies have found success in be exactly what Disney needs to make up for a lackluster year? Or are they too late to the party? Based on what they have announced so far, I could see this new service being successful for Disney. They have a large fan base and with Disney films as well as Star Wars and Marvel films being released directly to consumers, there is a large incentive to pay for a subscription. This new service could compete with Netflix and the other streaming service but, It depends on exactly what Iger comes up with and if he can find enough content to satisfy consumers that are already loyal to the likes of streaming giants Netflix, Hulu, and HBO GO.





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