Disney Posts Lower Quarterly Profits, Unveils New Streaming Plans

The Walt Disney Company, which saw its net income slip 9 percent in its third fiscal quarter to $2.37 billion, is planning to introduce new OTT services for ESPN and the Disney brand, effectively ending its distribution agreement with Netflix for subscription streaming of new releases.

Disney previously acquired a 33 percent stake in BAMTech—which provides direct-to-consumer streaming technology and marketing services, data analytics and commerce management—from MLBAM, the interactive media and internet company of Major League Baseball. The agreement had included an option to acquire a majority stake over several years. Now, Disney will pay $1.58 billion to acquire an additional 42 percent stake. The company will launch its ESPN-branded multi-sport video streaming service in early 2018, followed by a new Disney-branded direct-to-consumer streaming service in 2019.

The ESPN-branded multi-sport service will offer a variety of sports programming, featuring around 10,000 live regional, national and international games and events a year. This includes Major League Baseball, National Hockey League, Major League Soccer, Grand Slam tennis and college sports. Individual sports packages will also be available for purchase, including MLB.TV, NHL.TV and MLS Live. The new service will be accessed through an enhanced version of the current ESPN app.

The new Disney-branded service will become the exclusive home in the U.S. for SVOD viewing of the newest live-action and animated movies from Disney and Pixar, starting with the 2019 theatrical slate, which includes Toy Story 4, the sequel to Frozen and The Lion King from Disney live-action. Disney will also make a significant investment in an annual slate of original movies, TV series, short-form content and other Disney-branded exclusives for the service. Additionally, the service will feature a collection of library content, including Disney and Pixar movies, as well as Disney Channel, Disney Junior and Disney XD TV programming.

With this shift, Disney will end its distribution agreement with Netflix for subscription streaming of new releases, starting with the 2019 calendar year theatrical slate.

For the quarter ended July 1, revenue was down just slightly at $14.24 billion. Media Networks revenues for the quarter decreased 1 percent to $5.9 billion and segment operating income decreased 22 percent to $1.8 billion. Cable Networks revenues for the quarter were down 3 percent to $4.1 billion and operating income decreased 23 percent to $1.5 billion. The lower operating income was due to a decline at ESPN, which saw higher programming costs, lower advertising revenue and severance and contract termination costs, partially offset by affiliate revenue growth. Broadcasting revenues for the quarter increased 4 percent to $1.8 billion and operating income decreased 22 percent to $253 million. The decrease in operating income was due to lower ad revenue, a decrease in the cost charged to ESPN for programming aired on the ABC Television Network and higher programming costs. Parks and Resorts delivered revenues of $4.9 billion, up 12 percent, and segment operating income increased 18 percent to $1.17 billion. Studio Entertainment revenues were down 16 percent to $2.4 billion and segment operating income decreased 17 percent to $639 million.

“Today we announced a strategic shift in the way we distribute our content. The media landscape is increasingly defined by direct relationships between content creators and consumers, and our control of BAMTech’s full array of innovative technology will give us the power to forge those connections, along with the flexibility to quickly adapt to shifts in the market,” said Robert A. Iger, the chairman and CEO of The Walt Disney Company. “This acquisition and the launch of our direct-to-consumer services mark an entirely new growth strategy for the Company, one that takes advantage of the incredible opportunity that changing technology provides us to leverage the strength of our great brands.”

“Our results for the quarter reflect the underlying strength of our brands and franchises and our continued investment in high-quality content,” said Christine M. McCarthy, senior executive VP and chief financial officer of The Walt Disney Company. “Our ability to successfully execute on our core strategy, coupled with our plans for new direct-to-consumer offerings, give us continued confidence in our ability to drive shareholder value.”