Iger offers new details of Disney’s digital plans
LOS ANGELES — Walt Disney Co. has less than year to go before it finds itself operating three separate video-streaming services, and Chief Executive Robert Iger offered fresh details Tuesday on how that new strategy will affect the world’s largest entertainment company.
For the first time, Disney reported quarterly earnings under a new company organization that introduces a direct-to-consumer segment — which comprises its streaming services — alongside traditional divisions like studio entertainment and theme parks. The direct-to-consumer segment, including a Disney-branded streaming service called Disney+ set to launch late this year, posted a quarterly loss of $136 million.
That loss is largely due to preparing for what is to come: an increased investment in Disney’s ESPN-branded streaming service, whose subscriber count has doubled to two million in the past five months, and costs associated with preparing for the launch of Disney+.
"This is a bet on the future of this business," Mr. Iger said on a conference call with Wall Street analysts.
Disney’s move into the video-streaming business is among the most closely watched decisions in recent Hollywood history, one that would have been difficult to imagine just five years ago, when direct-to-consumer offerings were hardly on studios’ radars. Combined with Disney’s $71 billion deal to acquire major assets of 21st Century Fox, the company overhaul already has rival studios bracing for a landscape in which scale trumps all. Netflix Inc. has boosted its programming plans in anticipation of Disney and Fox shows leaving its service, and rival studios such as AT&T Inc.’s Warner Bros. are at work on their own direct-to-consumer offerings.
At Disney, having a streaming service in-house will force executives to decide where to open a particular movie or television show. Some movies that were slated to premiere in theaters have been moved to the streaming service, which is expected to debut with new programming based on Disney’s signature brands, including "Star Wars" and Pixar Animation Studios.
Mr. Iger said Tuesday he has no plans to shorten the length of time major releases stay in theaters, but said the company may consider shortening the length of time between when a movie is in theaters and when it is available on its streaming service.
Taking Disney movies and shows off Netflix will cause a loss of $150 million a year in licensing income, the company said. The lost income, which Disney hopes to recoup in subscription fees for its own service, will be spread across the company’s movie studio and media networks.
Disney already operates an ESPN-branded streaming service, which became available in April. The service, called ESPN+, saw nearly 600,000 new users sign up last month in anticipation of the debut match of the mixed- martial-arts group UFC on the service. Marketing ESPN+ on traditional networks has been an effective way to attract subscribers, said Mr. Iger, adding that Disney+ will be promoted across the company’s other divisions.
A third streaming service, Hulu, will come under majority control at Disney following the Fox deal, which has a handful of foreign territory approvals to clear before closing.
Hulu will be the likely home of programming from the FX network or characters that aren’t as family-friendly as those in the Disney brand, said Mr. Iger. Since Disney is known for its child-friendly content, it needs to avoid scenarios where parents find their children watching Fox’s R-rated "Deadpool" when they thought they had signed up for family entertainment.
No Fox movies "would be of concern to us as long as we’re carefully branding them," said Mr. Iger.
Studio entertainment revenue for the three months ended Dec. 29 fell 27% year-over-year, largely owing to the so-so performance of Disney’s holiday release, " Mary Poppins Returns," and the poor showing of November’s "The Nutcracker and the Four Realms." In the same period a year ago, Disney had released the hits "Star Wars: The Last Jedi" and "Thor: Ragnarok."
Disney’s theme parks continue to be a source of growth for the company, although Mr. Iger said the slowdown in China’s economy has depressed attendance at Shanghai Disneyland Resort. The domestic parks are expected to see a sizable attendance boost following the opening this year of "Star Wars" themed attractions, which Mr. Iger said are so anticipated he likely wouldn’t need to spend much on marketing.
"I think I should just tweet ‘It’s opening’ and that would be enough,’" he said.
Overall, Disney reported a fiscal first-quarter profit of $2.79 billion, or $1.86 a share, compared with $4.42 billion, or $2.91 a share, a year earlier. Excluding certain items, profit fell by 5 cents to $1.84 a share. Disney’s income tax bill was $645 million in the latest period, compared with a $728 million income-tax benefit a year earlier.
Revenue fell slightly to $15.3 billion from $15.35 billion a year earlier.
Analysts surveyed by FactSet expected an adjusted profit of $1.54 a share on $15.16 billion in revenue. Meanwhile, expenses rose 2.8% to $11.89 billion.
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