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More than a dozen Walt Disney executives spent four hours at the studio lot in Burbank on Thursday showing off programming and disclosing all sorts of details about its upcoming Netflix competitor dubbed Disney+ and, by all accounts, they delivered the goods during a highly anticipated “investor day.”
Shares in Walt Disney on Friday jumped $13.46, nearly 12 percent, to $130.06 a day after unveiling a $6.99 a-month streaming service that is cheaper than Netflix. Prior to the close, the stock traded for a record high of $130.90.
“They’re not Mickey-Mousing around on this one,” Leichtman Research Group’s Bruce Leichtman said. “With the Disney brand, as well as other known brands and content, priced at $6.99 a month, it appears that they will have compelling content at an attractive cost from day one.”
Friday’s action on Wall Street left Disney with a $233.8 billion market capitalization, while Netflix, the giant of streamers, lost more than 4 percent and ended trading with a market cap of $153.3 billion.
“Disney remains the crown jewel among those most precious global content properties,” said Jimmy Schaeffler of the Carmel Group. “Disney has the image, the savvy and the history to put that rare ethos, and even logos, in front of a new streaming generation … what a great time to be a broadband consumer of global video content.”
Disney’s price undercuts Netflix by $2 a month, and more than that if consumers opt for the yearly option of $69.99. Some of that compelling content, as Leichtman puts it, will come by way of Disney’s $71 billion acquisition of most of 21st Century Fox, hence, when Disney+ debuts on Nov. 12 it will feature all 30 seasons of The Simpsons. Soon after that, beloved Fox movies like The Sound of Music and The Princess Bride will show up alongside roughly 500 Disney films and 7,500 TV episodes.
Within its first year, Disney will release more than two dozen original TV series on its ad-free streamer, including the first live-action Star Wars series and 10 original films, including a movie based on its Phineas and Ferb hit Disney Channel show, a live-action version of Lady and the Tramp and a Christmas movie called Noelle that stars Anna Kendrick as the daughter of Santa Claus.
And as impressive as the content may be, Disney+ may be a ways from profitability: The company has already lost about $1 billion on its streaming businesses and it will lose $150 million in operating income in 2019 alone by no longer licensing content to Netflix.
And BTIG Research analyst Richard Greenfield wonders about the negative impact on Disney’s legacy cable/satellite business. Disney gets about $15 a month per subscriber for its package of networks that includes ESPN, the Disney Channel and more, and with the addition of FX and National Geographic, formerly owned by Fox, that number is expected to rise a few bucks.
But, asks Greenfield, why does Disney management believe cable and satellite distributors will pay top dollar for Disney’s networks when the company is “clearly stating publicly that their direct-to-consumer streaming services are their No. 1 priority, with their boldest TV projects all headed to streaming”?
Disney’s streaming business, though, also consists of ESPN + and its 60 percent stake in Hulu, and DTC and international chief Kevin Mayer said during Thursday’s investor day that Disney will “likely” bundle the three at a discounted price. Disney also said Thursday that operating losses for ESPN+ will be around $650 million both in fiscal 2019 and fiscal 2020, even as it attracts as many as 12 million paying subscribers by the end of fiscal 2024.
As for Disney+, analysts at UBS expect it could grow to 50 million subscribers worldwide in five years, representing “the fastest uptake of any DTC platform to date.” Netflix , which launched its DVD-by-mail subscription service in 1997 and streaming in 2007, hit 50 million subscribers in 2014 and has more than 139 million today. Most analysts figure Disney+ needs more than 10 million subs before it breaks even, depending on how much it spends on original content.
And original content for streamers is becoming increasingly important: Parrot Analytics, for example, says the demand for Netflix originals will become greater than the demand for licensed titles beginning around October, and then that will be the case for the foreseeable future.
Disney’s investor day comes a month after Apple previewed its upcoming TV app during an event that was high on star power but low on details, like how much its upcoming service will cost or what the bulk of the programming will consist of. Still to come, are what services from WarnerMedia and NBCUniversal will look like. Even so, some believe Disney has the upper hand when it comes to competing with Netflix, not to mention Amazon Prime Video.
“Disney’s entrance into the streaming market will strengthen the overall Internet television industry and benefit consumers,” said Ben Weiss, chief investment officer at 8th & Jackson Capital Management. “The Internet entertainment market is going to be enormous. With strong brands, great storytelling and a commitment to a quality consumer experience, Disney should have a big presence.”
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