Disney to launch own streaming service, pulling movies from Netflix

SUMMARY:

Netflix’s share prices dived on the announcement that Disney will be taking a controlling stake in BAMTech to launch its own streaming service.

The online streaming wars are heating up after Disney announced that it would be taking a controlling stake in BAMTech to launching its own subscription service, whilst also announcing that it would be pulling all of its current content from Netflix from 2019.

Disney chairman and chief executive Robert A. Iger said that the company would also be investing heavily in original content and would be looking to roll-out the service globally in certain markets.

Following the announcement, Netflix’s shares fell by more than 5% in after-hours trading.

Speaking to investors, Iger said:

We’re excited by this change and see it as an important logical way for us to take advantage of the combination of our strong brands with the technological evolution the entire media business is undergoing. It’s been clear to us for a while with the future of this industry will be forged by direct relationships between content creators and consumers.

Given our incomparable collection of strong brands that are recognized and respected the world over, no one is better positioned to lead the industry into this dynamic new era, and we’re accelerating our strategy to be at the forefront of this transformation.

Disney acquired a 33% stake in BAMTech last year, but has said that it has now invested a further $1.6 billion to boost its stake to 75% and will acquire control of the company. Iger said that the company has been “increasingly impressed with the platform, the leadership, and the potential to drive growth”.

He added that taking a controlling stake will give Disney immediate access to the team and the technology it needs to deliver a quality direct-to-consumer experience, which gives it “greater control” of its own destiny in a rapidly changing market.

As a result of the acquisition, Disney will also be expanding its plans for its ESPN-branded direct-to-consumer service, giving fans access to 10,000 additional events annually. This service will be offered via a new ESPN app. Commenting on the app, Iger said:

Subscribers will access the new service through an enhanced version of the current ESPN app, which millions of fans already use for sports news and programming. We’ll fully integrate the new subscription service into the same app as part of our strategy to create the premier digital destination for sports. Consumers, who are pay-TV subscribers, will also be able to access the ESPN television networks in the same app on an authenticated basis.

Ultimately, we envision this will become a dynamic sports marketplace that will grow and be increasingly customizable, allowing sports fans to pick and choose content that reflects their personal interests. Our new direct ESPN service will be available to consumers in early 2018.

We’re creating a one-app experience so that from a consumer perspective there’s a real ease-of use and ease-of-navigation, so that you can as an ESPN fan, you can go to one app, look at scores and highlights as you know the ESPN provides, authenticate it to watch the linear networks or buy an additional amount of live sports programming basically in the same experience on the same service.

Problematic for Netflix

It has said that as much as 30% of Netflix’s viewing figures are as a result of Disney’s content, which will likely be a great source of concern for the leading subscription service. Announcing Disney’s results this week, which saw slight decline in revenue and a 9 percent drop in net income, chief executive Iger highlighted Disney’s competitive advantage. He said:

Of course, one of the most compelling brands for a direct-to-consumer product is Disney, and to that end, we will launch a Disney-branded streaming service in 2019, which will be unlike anything else in the market. The new service will become the exclusive home in the U.S. for subscription video-on-demand viewing of the newest live action and animated movies from Disney and Pixar, beginning with the 2019 slate, which includes Toy Story 4, the sequel to Frozen, and The Lion King from Disney live-action, along with other highly-anticipated movies.

We’ll also be making a substantial investment in original movies, original television series, and short form content for this platform, produced by our studio, Disney Interactive and Disney Channel teams. Subscribers will also have access to a vast collection of films and television content from our library.

These announcements marked the beginning of what will be an entirely new growth strategy for the company, one that takes advantage of the opportunities the changing media and technology industries provide us to leverage the strength of our great brands.

Iger added that one of the “beauties” of the Disney brand is that it has global recognition and a fan base that is international. Iger said that the service will be rolled out in global markets, following a launch in the US. He said:

We’ll also tap into a vast library of movies and television shows that have been made by the company, the Channel and the Studio over the years, and we’ll invest significantly in original movies and television shows exclusively for this subscription service.

We’ll also rollout the service in multiple markets outside the United States, but it will vary from market to market based on existing distribution agreements and different market dynamics. But I think you have to think about a Disney branded direct-to-consumer subscription service as a global product, even though we are being more specific today about launching a domestic product in the latter part of 2019.

And, of course, this announcement has only been made possible by Disney’s investment in BAMTech, which, according to Iger, appealed because of its advanced technological capability. He said:

What impressed us about BAM was, first of all, it’s the most robust live streaming platform out there. When you think about live sports and how much a sporting event live is consumed basically concurrently by the masses, you need a very, very robust technology platform to serve that. BAM is the only one out there that has that. In addition, they have great essentially customer management systems and technology.

That’s everything from onboarding and retention to credit card management to password management. They also have good ad technology. Think about the opportunities in terms of dynamic ad insertion as a for instance. And they basically have very, very strong data management as well and the ability for us to mine user data so that we can get greater customization and personalization.

My take

Whilst Netflix has had a head start, it can’t be denied that Disney’s brand and back-catalogue will hold great appeal for many. This will likely be of great concern for many executives at Netflix. However, Netflix’s track record for investing in quality original content has proven to be a differentiator for the service and will likely hold it in good stead. Key to this will also be BAMTech’s platform – providing an advanced, personalised, global service isn’t easy. This is going to be an interesting watch over the next few years.

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