Verizon CFO Touts Disney+ Deal

Disney+ Demo - H - 2019

At an investor conference in Barcelona, Matt Ellis didn't share early user figures, but predicted "a pretty significant number" of eligible Verizon customers would take advantage of the promotional partnership.

Verizon CFO Matt Ellis at an investor conference in Barcelona, Spain, on Wednesday didn't share any early user numbers for Walt Disney's new Disney+ streaming service, but touted the telecom giant's deal with the service.

Late last month the companies unveiled the deal to give some of the phone giant's wireless and Internet customers a year of Disney+ for free. The offer applies to Verizon's wireless unlimited customers and new Fios Internet and 5G home Internet customers. Analysts raised their Disney+ subscriber forecasts on the deal as they highlighted it could potentially add millions in new customers for Disney+.

Asked at the Morgan Stanley European Technology, Media & Telecom Conference in Barcelona in a session that was webcast if he had any early subscriber data after Tuesday's Disney+ launch, Ellis said it was "too early" for that. Approximately 17 million Verizon wireless accounts are unlimited, and "a pretty significant number" of that are expected to take advantage of the offer, he said without sharing a more specific subscriber forecast. 

"This is really a good partnership," he said, in touting the deal. "It's a win-win." Asked about its financial impact, he said "the cost associated with [it]…there is a joint investment." Verizon spends money on promotional activity anyway, and "this is a way of spending some of those promotional dollars in a way that we think has the biggest return," Ellis said.

The first 12 months of a subscriber's Disney+ will show up in Verizon's cost of service given it is a promotion. If a subscriber continues past the 12 months and then pays $6.99 a month for Disney+, "they can do that through their Verizon bill and then we obviously pay Disney some portion of that," the CFO said, without disclosing how big that portion is. "You will see that $6.99 show up in revenue and the part that we pass on to Disney show up in the cost line." 

Discussing how the Disney+ deal came about, the Verizon CFO said Disney was launching a "very exciting product" and wanted the "best possible launch" and consumer experience. He argued that Verizon gives Disney the best mobile network and added customer reach. "This is really an example of one plus one being something greater than two."

Verizon has long highlighted the challenges of traditional pay TV, such as its FiOS TV service. Asked about trends there, Ellis said "FiOS is an important part of our business," especially its FiOS broadband service. "If you are going to be a cord cutter and you still want your entertainment, you need to have a strong broadband experience," he said.

But on the video side, Verizon has "seen the margin from the video component of FiOS compress to the point where today I am largely ambivalent between getting a broadband-only customer and a bundled customer," he said. "Obviously, the revenue lines are a little higher in the bundled customer, but the margin dollar line is essentially the same. If that continues that trend, it’s really not sustainable from a distributor’s standpoint.”