Disney’s Direct-to-Consumer Biz Widens Q1 Operating Loss

Disney CEO Bob Iger says over-the-top video is the media giant’s future and No. 1 goal in 2019.

That future is expensive, too.

Disney Feb. 5 reported that first-quarter (ended Dec. 29, 2018) operating losses from the direct-to-consumer & international segment increased from $42 million in the previous-year period to $136 million. Revenue decreased 1% to $918 million from $931 million. The dip reflected a 4% decrease from an unfavorable foreign currency impact.

The increase in operating loss was due to the ongoing investment ramp-up in ESPN+, which launched last April and has about 2 million subscribers, a loss from streaming technology services and costs associated with the upcoming Q4 launch of Disney+, partially offset by an increase at the company’s international channels and a lower equity loss from its investment in Hulu.

Increased revenue at international channels was due to lower costs, affiliate revenue growth and higher program sales, partially offset by an unfavorable foreign currency impact.

Results for Hulu, which is co-owned by Disney, Fox, Comcast and WarnerMedia, reflected increases in subscription and advertising revenue, partially offset by higher programming costs. The service has more than 25 million subscribers.

“We look forward to the transformative year ahead, including the successful completion of our 21st Century Fox acquisition and the launch of our Disney+ streaming service,” Iger said in a statement. “Building a robust direct-to-consumer business is our top priority, and we continue to invest in exceptional content and innovative technology to drive our success in this space.”

CFO: Comcast Wants ‘Healthy’ Relationship with Hulu

Hulu, the subscription streaming video service and online TV platform co-owned by Disney, Fox, Comcast and WarnerMedia, is valued by its corporate parents at more than $9 billion – despite posting hundreds of millions of dollars in equity losses.

Disney’s pending close of its $71 billion acquisition of 20th Century Fox Film, which includes Fox’s 30% stake in Hulu, will make the media giant majority owner going forward.

With WarnerMedia revealing a desire to sell its 10% Hulu stake, that leaves Comcast as a minority stakeholder to Disney’s vision for the 11-year-old over-the-top video platform going forward.

Speaking on last month’s fiscal call, Disney CEO Bob Iger said the company planned to incorporate Fox’s television production to up original programming at Hulu.

“We feel [that] will enable Hulu to compete even more aggressively in the marketplace,” said Iger.

Meanwhile, Comcast reported a $132 million equity loss at Hulu for the fiscal period ended Sept. 30 – up from an equity loss of $62 million during the previous-year period. Through nine months Hulu generated a $370 million equity loss for Comcast – more than double the cabler’s $168 million equity loss last year.

Speaking Dec. 4 at the UBS 46th Annual Global Media and Communications confab in New York, Comcast CFO Michael Cavanagh reiterated the company’s support for Hulu and belief that “some form of direct-to-consumer” product “will make sense for us.”

Whether that includes Hulu remains to be seen. Cavanagh wouldn’t offer any insight on possible changes in management’s mindset, saying only that the platform remained a good home for select NBC Universal programming.

“We want to continue to have a healthy relationship with Hulu,” he said. “We think much of our content finds a great home on that platform. And one way or the other, we want to make sure we have a good and healthy and constructive for everybody ongoing relationship with Hulu.”

 

Disney Has Big Plans for Hulu

Hulu may be losing millions in equity for its corporate parents, but that isn’t stopping The Walt Disney Co. from dreaming big going forward about the 11-year-old SVOD service and online TV platform.

Disney, which attributed $10 million in Q4 equity losses to higher programming, marketing and labor costs at Hulu, partially offset by growth in subscription (20+ million) and advertising revenue, will become majority (60%) owner of the SVOD when its acquisition of 20thCentury Fox Film Corp. is finalized.

Hulu’s other corporate owners include Comcast (30%) and WarnerMedia (10%).

Speaking Nov. 8 on the fiscal call, Disney CEO Bob Iger thinks Hulu’s sub growth, brand strength and user demographics portend an opportunity to increase investment in Hulu – especially on programming.

“With this [Fox] acquisition comes not only some great IP, but some excellent talent, particularly on the television side,” Iger said. “And we aim to use the television production capabilities of the combined company to fuel Hulu with a lot more original programming … [content] that we feel will enable Hulu to compete even more aggressively in the marketplace.”

Specifically, Iger cited Hulu’s younger user base – apparently 20 years younger than competitors Netflix and Amazon Prime Video – and penchant for off-network content.

“And that’s clearly attractive to advertisers, which I think has been somewhat underappreciated about Hulu in that it … can offer targeted ads,” Iger said.

Hulu’s base $7.99 subscription plan features ad-supported content, while the $11.99 plan is ad-free. Iger says the service – especially the $39.99 Hulu With Live TV – has some price elasticity of demand.

“I think there’s an opportunity to improve – or I should say increase our pricing there,” he said.

Notably, Iger envisions Hulu focusing on general and edgier entertainment (i.e. Fox’s “American Horror Story” and R-rated movies), with Disney+ catering to softer fare.

“We’ll leave the more family-oriented programming to the Disney+ app,” he said.

Disney’s Bob Iger Wants to Expedite Home Video Window

Following strong Q4 home entertainment and theatrical results, Walt Disney CEO Bob Iger said he has no plans to downsize the theatrical window as it relates to Disney movies transferring earlier to the company’s pending over-the-top video service, Disney+.

The same restraint, however, cannot be said about retail channels, including DVD, Blu-ray Disc and electronic sellthrough.

Speaking Nov. 8 on the fiscal call, Iger said that with the studio generating a record $3 billion in operating revenue – up 27% from a record $2.3 billion in the previous-year period – shortening the traditional 90-day window would only dampen revenue (and anger exhibitors).

Indeed, studio revenue reached nearly $10 billion in the fiscal year, up 19% from $8.4 billion last year.

“With us, if it ain’t broke … ,” quipped Iger, in response to an analyst’s question whether OTT video platform Disney+ afforded the studio opportunities to give consumers earlier streaming access to branded movies in the home.

Iger said Disney would continue fight to maintain the traditional theatrical window, which has been under (now measured) attack by Netflix.

“We have a studio that is doing extremely well and a [release window] formula that is serving us really well in terms of its bottom line,” he said.

Interestingly, Iger gave a shout out to home entertainment – his first in years – which he said continued to deliver strong retail results for digital and physical content. In fact, the executive said there is ongoing internal strategy about putting theatrical content into retail channels sooner.

“The home video window continues to be quite important to us,” said Iger. “You’ll likely see us protect that as well, although there’s going to be discussion around whether there’s an opportunity to move product into that window maybe a little sooner.”

Iger quickly clarified Disney was not looking to encroach – at the moment – upon the theatrical window.

Disney is ending a record year in home entertainment with five of the top-six selling DVD/Blu-ray Disc titles, including Black Panther, Star Wars: The Last Jedi, Coco, Thor: Ragnarok, Avengers: Infinity War, and just-released, Solo: A Star Wars Story. The titles — excluding Solo — have generated nearly $400 million in combined revenue since their release.

Disney CEO Bob Iger: OTT Video No. 1 Priority, Not Competing Against Netflix

With the Walt Disney Co. planning to launch a branded over-the-top video platform in late 2019, the SVOD service, along with digital platform ESPN+ and majority ownership of Hulu will dominate the company’s objectives in the coming year, according to CEO Bob Iger.

Speaking Aug. 7 on the fiscal call, Iger said OTT video is a reality and here to stay. He said the pending Disney services would focus on incorporating core brands, including Marvel, Star Wars and Pixar, in an effort to complement, and to a lesser extent, compete with SVOD platforms such as Netflix, which is spending $8 billion this year alone on original content.

“The launch of [direct-to-consumer] product at the end of 2019 is the biggest priority of the company during calendar 2019,” said Iger, adding that the service would initially target core Disney fans.

“There will be significant amounts of support given across all of our assets to see to it that the platform launches successfully,” he said.

The service/app will feature original branded series and movies, including the first-ever live-action “Star Wars” series, and new episodes of the “Star Wars: Code Wars” animated series; a live-action version of The Lady and the Tramp, in addition to other new series based on popular Disney properties.

“The [20th Century Fox Film] acquisition brings even more opportunity to create original programming for this platform,” said Iger, who added Disney plans on walking before running with the new service.

“It’s takes time to build the kind of content library [for the service that] ultimately we intend to build,” he said. “Because the app will feature Pixar, Disney, Marvel, National Geographic, Lucasfilm and Star Wars, we feel that it doesn’t have to have anything close to the volume of what Netflix has.”

“This gives us the ability to not necessarily be in the volume game, but be in the quality game,” said Iger. “It’s not as though the cupboard’s going to bare.”

Iger said the recently launched ESPN+, pending family-oriented Disney service along with the existing Hulu platform appeal to different consumer tastes and audience demographics.

“As we look at the environment today … we don’t want to go to market with an aggregation play that replicates the multichannel [TV bundle] environment, because we feel consumers are more interested in making [channel] decisions on their own,” said Iger. “We can offer that kind of flexibility to consumers because that’s … what consumer behavior demands.”

The CEO reiterated that the Disney OTT service would be priced lower than Netflix to reflect the difference in content offerings. He said that upon closing the Fox acquisition, Hulu would “also fit into our app strategy.”

When asked how the 2019 theatrical slate could impact the streaming service, Iger said existing distribution windows would be configured to benefit the OTT service. Next year’s slate includes Captain Marvel, Dumbo, Avengers 4, Aladdin, Toy Story 4, The Lion King, Jungle Cruise, Artemis Fowl, Frozen 2 and Star Wars Episode 9.

“For 2019, the studio movie slate is clean and unencumbered,” he said.

Comcast CEO Brian Roberts Punts on Hulu Stake Question

Late in Comcast’s July 26 fiscal call, chairman/CEO Brian Roberts was asked about becoming a minority stake holder in Hulu should Disney’s $71 billion acquisition of 20th Century Fox Film and other Fox assets be approved.

Roberts replied management was not “prepared to address” some issues, which apparently included Hulu, which Comcast co-owns with Fox, Disney and WarnerMedia (formerly Time Warner).

Disney acquiring Fox would give it 60% ownership of Hulu, with Comcast holding 30% and WarnerMedia with 10%.

There’s no love lost between Disney CEO Bob Iger and Roberts when it comes to media mergers.

The two high-profile executives have been embroiled in competing bids to acquire controlling stakes in 20th Century Fox and British satellite TV operator Sky, among other properties.

With Disney planning to launch a branded over-the-top video platform in 2019, scuttlebutt suggests the Mickey Mouse company could hit the ground running incorporating Hulu — with 17 million subscribers — as part of its strategy increasing direct-to-consumer exposure with exclusive content.

Such a move could further undermine Comcast’s legacy cable business, which continues to lose consumers to cord-cutting and OTT video services such as Netflix, Amazon Prime Video — and Hulu.

“We’re focused on Sky now,” Roberts said. “We think it’s a great business, it will fit well, good use of capital. It’s also unique, but I don’t want to say anymore today and hopefully that addressed a number of your issues.”

Comcast Ends Pursuit of 20th Century Fox, But Not Sky

As expected, Comcast Corp. July 19 officially dropped out of its attempt to acquire select assets of 21st Century Fox, including 20th Century Film and majority ownership of Hulu.

The media giant was considering upping its $65 billion offer for Fox, which included a 39% stake in British satellite TV distributor Sky.

“Comcast does not intend to pursue further acquisition of the Twenty-First Century Fox assets and, instead, will focus on our recommended offer for Sky,” the company said in a statement.

Comcast currently has a $34 billion (£14.75 per share) offer on the table for Sky, which exceeds Fox’s revised offer of £14 per share.

The decision should clear a path for Disney’s $71.3 billion bid, which has been approved by Rupert Murdoch, majority shareholder of 21st Century Fox.

“I’d like to congratulate [Disney CEO] Bob Iger and the team at Disney and commend the Murdoch family and Fox for creating such a desirable and respected company,” said Comcast chairman/CEO Brian Roberts.

 

 

CNBC: Comcast Unlikely to Increase Fox Bid, Focusing Instead on Sky

Comcast Corp. reportedly is not considering raising its $65 billion cash offer to top Disney’s current $71.3 billion bid for select 21st Century Fox assets, including 20th Century Fox Film and Fox’s 39% stake in British satellite TV operator Sky.

Citing sources familiar with the situation, CNBC (which is owned by Comcast’s NBC Universal) July 16 reported Comcast is putting its efforts and cash on Sky, which has 23 million pay-TV subscribers in the United Kingdom, Italy and Germany.

Comcast July 12 upped its offer for Sky to $34 billion (£26 billion), or £14.75 per share, exceeding 21st Century Fox’s revised offer of £14 per share. Comcast claims its superior cash offer has been recommended by an independent committee on Sky’s board of directors.

Regulatory approval could be playing a role in Comcast’s switching priorities. With Department of Justice appealing a judge’s decision greenlighting AT&T’s $85 billion purchase of Time Warner on antitrust issues, Comcast could be hedging its bets, according to CNBC’s David Faber, who broke the story.

In addition, Rupert Murdoch, who controls 39% of 21st Century Fox’s shares, reportedly favors Disney acquiring Fox’s studio assets.

How this impacts Disney’s bid for Fox remains to be seen. Disney CEO Bob Iger has called Sky the “crown jewel” in the Fox deal, which suggests he wouldn’t be amenable to minority ownership.

 

Comcast Tops Fox’s Bid for Sky as British Government Greenlights Murdoch’s Offer

NEWS ANALYSIS — As expected, Comcast Corp. increased its all-cash offer for British satellite TV operator Sky to $34 billion (£26 billion), or £14.75 per share, exceeding 21st Century Fox’s revised offer of £14 per share. Fox, which is controlled by Rupert Murdoch, currently owns 39% of Sky.

This came the day before the British government — after months of regulatory review — formally cleared Fox’s pursuit for remaining interest in Sky.

“It’s now a matter for Sky shareholders to decide whether to accept 21stCentury Fox’s bid,” Jeremy Wright, U.K. cultural and media secretary, said in a July 12 statement.

Which could be meaningless considering the third player (Disney) in this high-stakes media consolidation battle last month upped its bid for Fox to $71.3 billion (which includes Fox’s stake in Sky) after Comcast offered $65 billion — topping the Mickey Mouse’s company’s initial $52.4 billion acquisition amount.

Disney CEO Bob Iger has called Sky – with 23 million subscribers in the U.K., Germany and Italy, and a budding over-the-top video business – the “crown jewel” in the Fox deal.

Comcast claims its superior cash offer (Disney’s bid is cash and stock) has been recommended by an independent committee on Sky’s board of directors.

The company says it has the relevant regulatory approvals in the European Union, Austria, Germany, and Italy —  and expects to complete the acquisition before the end of October.

In a statement, the Philadelphia-based media giant said it has long admired Sky and believes the satellite operator is an outstanding company and a great fit with Comcast Cable.

“Today’s [July 11] announcement further underscores Comcast’s belief and its commitment to owning Sky,” said the company headed by cable veteran Brian Roberts.

Fox and Disney shareholders are slated to vote July 27 on the latter’s bid for 20th Century Fox Film, Sky and related assets. This gives Comcast about two weeks to up its Fox bid. Or does it?

BTIG Research senior analyst Rich Greenfield — in response to media scuttlebutt Comcast and Disney could stop the fiscal escalations with Comcast taking Sky and Disney opting for Fox’s assets — says such a move would be detrimental to both sides.

He said combining Disney and 20th Century Fox Film would dwarf Comcast-owned Universal Studios, while Disney abandoning Sky would give Comcast greater distribution.

“Why start a fight you do not want to finish?” Greenfield wrote in a blog note. “If Disney’s acquisition goal is adding 100% owned and controlled subscriber relationships, why go through all this effort and allow Comcast to own all of or at the very least control Sky?”

Fox/Disney Cite Hulu in Arguments Against Comcast Bid

NEWS ANALYSIS — Apparently, 21st Century Fox and The Walt Disney Co. really don’t want Comcast to buy the former’s 20th Century Film and British satellite TV operator Sky businesses no matter how many billions the cabler puts on the table.

Fox, which is run by Rupert Murdoch and his son Lachlan — in a regulatory filing — said Comcast’s $65 billion all-cash offer faces too many regulatory hurdles. Instead, it believes Disney’s competing $71 billion cash/stock bid poses fewer risks.

“While a potential Disney transaction was likely to receive required regulatory approvals and ultimately be consummated, a strategic transaction with Comcast continued to carry higher regulatory risk leading to the possibility of significant delay in the receipt of merger consideration as well as the risk of an inability to consummate the transactions,” the company said in the filing.

However, Comcast made its offer for Fox the day after a federal judge rejected similar antitrust issues and ruled in favor of AT&T’s $85 billion merger with Time Warner.

Included in the competing Disney/Comcast offers is controlling interest in Hulu, the money-losing SVOD service and adjunct online TV platform. Both Disney and Comcast would have 60% control of Hulu should either consummate the deal. Currently each company (along with Fox) has a 30% stake, with AT&T’s WarnerMedia owning 10%.

Hulu was a key issue to regulators when Comcast acquired NBC Universal in 2011. The DOJ at the time worried so much that Comcast could thwart rollout of over-the-top video that it mandated the company “relinquish its management rights in Hulu,” among other provisions. It also ordered Comcast make NBC Universal content available to Hulu “that is comparable” to the programming Hulu obtains from Disney and News Corp. (now 21st Century Fox).

Indeed, in a June 20 investor call, Disney CEO Bob Iger reiterated those concerns.

“What is also clear to us is that in the vertical concentration issues that I’ve talked about, this is a great concern to the DOJ,” said Iger.

With the OTT video ecosystem no longer in its infancy (hello, Netflix and Amazon Prime Video!), and Disney planning to roll out its own branded SVOD service in 2019, Fox contends regulators would have fewer issues with Disney controlling Hulu.

Which is precisely why the issue is moot, according to Rich Greenfield, media analyst with BTIG Research.

“Given that Hulu has been dwarfed by Netflix and Amazon on the SVOD front and trails well-behind other virtual MVPDs such as Sling and DirecTV Now, we find it difficult to imagine why greater Hulu ownership by Comcast would concern the DOJ in 2018,” Greenfield wrote in a June 26 note.

The analyst believes Comcast not only has the financial resources to top Disney’s offer, but smoother regulatory path as well.

“We continue to believe that if the DOJ is worried about reduced competition and higher consumer prices, with less choice in bundles, Disney/Fox is far more concerning than Comcast/Fox,” Greenfield wrote.