Analyst: Demand for Disney+ Streaming Service Stronger Than Expected

Disney’s branded subscription streaming video service, Disney+, is launching on Nov. 12.

Wall Street investment bank UBS is the latest to jump on the self-serving bandwagon championing the pending Netflix rival.

The research firm said that 43% of respondents in an internal survey said they were interested in subscribing to the $6.99 Disney+ service. That tops UBS’ previous 20% to 30% market penetration prediction by 2030 for Disney+.

“Marketing for the service has yet to hit critical mass,” analyst John Hodulik wrote in a note.

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Morgan Stanley projects the SVOD service could help Disney generate more than 130 million subscribers when combining Disney+ with ESPN+ and Hulu.

Analyst Ben Swinburne contends Disney+ will have upwards of 90 million subs within five years, including 13 million subs by the end of 2020.

“We believe the market has often overstated the risk and underappreciated the reward of the transition to streaming,” Swinburne wrote in a June 13 note. “Investing in Disney shares is a play on the durability of its IP.”

 

‘Star Wars’ Director J.J. Abrams Reportedly Close to Mega Deal with WarnerMedia

One of the reasons Netflix claims it doesn’t pursue live sports programming is fiscal common sense. Chief Content Officer Ted Sarandos argues he doesn’t want to become embroiled in vanity battles over escalating rights fees lavished by networks on MLB, the NBA and NFL for access.

Observers say that’s an odd reason, considering the SVOD pioneer has pushed content spending into the professional sports stratosphere. Netflix recently signed TV producers Ryan Murphy (“Glee,” “American Horror Story”) and Shonda Rimes(“Grey’s Anatomy,” “Scandal”) to record-breaking content deals valued at $300 million and $100 million, respectively.

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Warner Bros. TV shelled out a reported $400 million for producer Greg Berlanti (”Dawson’s Creek,” “You,” “Riverdale”).

And Apple inked deals with Oprah, Jennifer Aniston, Steven Spielberg and Reese Witherspoon, among others.

Now, Warner’s corporate umbrella – WarnerMedia – is reportedly close to signing director J.J. Abrams (Star Wars, “Westworld”) to an exclusive deal worth $500 million. An amount pushed by losing suitors Apple, Comcast and Netflix, among others.

WarnerMedia is swinging for the fences in part because it is backed by telco parent AT&T’s mushrooming debt spending ($171 billion) seeking a creative backstop for a pending branded SVOD service as well as leverage against the November OTT launch of Disney+.

WarnerMedia also recently signed smaller deals with Ava DuVernay (“When They See Us”), Mindy Kaling (“The Mindy Project”) and is reportedly close to re-signing Chuck Lorre (“Big Bang Theory,” “Two and a Half Men”) to another long-term production deal.

“With more streaming services competing for available content, we expect more [production] consolidation [i.e. spending] to occur over the next few years,” Wedbush Securities media analyst Michael Pachter wrote in a note.

 

 

WarnerMedia Readying $16-$17 SVOD Service Focused on HBO, Cinemax, Warner Bros. Movies

WarnerMedia reportedly plans to launch a subscription streaming video service later this year revolving around HBO, Cinemax and Warner Bros. movies — and priced from $16 to $17 monthly.

The unnamed service, which will bow in beta later this year, would join similar SVOD efforts from Disney ($6.99 Disney+) and Apple aimed at competing against Netflix, Amazon Prime Video and Hulu, according to The Wall Street Journal, which cited sources familiar with the situation.

NBC Universal is readying an ad-supported VOD service for Xfinity subscribers in 2020, which would be available separately to consumers for a monthly fee.

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Notably, WarnerMedia’s service would cost slightly more than what HBO Now ($14.99) and Cinemax ($12.99) do now separately — the latter charged to pay-TV subscribers.

WarnerMedia, which formed following AT&T’s $85 billion acquisition of Time Warner, is also eyeing ad-supported VOD service.

The rush to over-the-top distribution comes as AT&T continues to hemorrhage pay-TV subscribers among its DirecTV and AT&T U-verse platforms. Standalone online TV service, DirecTV Now, for the first time lost subscribers in the most-recent fiscal period as well.

Indeed, AT&T is scrambling to find an OTT product that resonates with consumers. Late last month, it inked a joint venture deal with The Chernin Group aimed at investing $500 million into both ad-supported and subscription-based online video businesses.

“Combining our expertise in network infrastructure, mobile, broadband and video with The Chernin Group’s management and expertise in content, distribution, and monetization models in online video creates the opportunity for us to develop a compelling offering in the OTT space,” John Stankey, CEO of WarnerMedia, said in a statement.

Bob Iger: Disney Prepared to ‘Pivot’ in New Direction with Hulu Ownership

Disney’s acquisition of Comcast’s 33% stake in Hulu for total control of the SVOD platform is part of the Mickey Mouse company’s move toward engaging with consumers directly, CEO Bob Iger told an investor group.

The transaction also enables Disney to roll out Hulu and Disney+ internationally unfettered by possible conflicts with Comcast’s ownership of Sky and streaming service Now TV.

Speaking May 14 at the 6th Annual MoffettNathanson Media & Communications Summit in New York, Iger said full control of Hulu (and Hulu with Live TV) coupled with ESPN+ and Disney+ streaming service (launching Nov. 12) would enable the company to target consumers separately through sports, TV content and movies, or collectively in a digital bundle.

“Managing your customers seamlessly across platforms, I think, has real value,” Iger said. “We have the ability to leverage the content engines in the company [Fox, FX, ABC, Disney, etc.] in a significant way here.”

For example, the executive envisions content creators such as FX and ABC producing programming for streaming on top of their pay-TV and broadcast channels.

“There’s a lot to this [internal synergies],” he said.

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Iger said his focus on direct-to-consumer distribution occurred on a “fateful” day in August 2015 when he claimed to be “rather candid” on an earnings call about the state of the pay-TV ecosystem, and ESPN in particular.

“We were seeing the disruptive effect of technology on traditional businesses,” Iger said, adding that none of the Disney business units (i.e. movies and TV shows) at the time — outside of the Disney Store and theme parks — interacted with the consumer directly.

“We decided we should be in the direct-to-consumer business,” he said, adding that theater operators, pay-TV operators, big box stores and ecommerce platforms have “known and owned” the Disney customer.

“We didn’t and we thought it was a big hole in terms of the company’s value proposition,” Iger said.

That realization prompted Disney to make an initial investment in BAMTech, which later (2017) morphed into complete ownership of the streaming tech company powering HBO Now, MLB.tv and NHL.tv, among other OTT platforms.

“Knowing essentially who [Disney’s consumers] are, we think we can create more value for the company and for them,” Iger said.

Streaming Red: Disney’s OTT Venture Down a Fiscal Black Hole

NEWS ANALYSIS — Disney bought Marvel Studios in 2009 for $4 billion. It bought Lucasfilm (“Star Wars”) for another $4 billion three years later.

The acquisitions helped Disney reign supreme at the box office in 2018, 2017 and 2016, according to data from BoxOfficeMojo. And it has a commanding lead in 2019 thanks to Avengers: Endgame.

At the same time, the Mickey Mouse company is set to lose more than $2 billion on streaming investments — “Disney Streaming Services” (formerly BAMTech), Vice Media, ESPN+ and Hulu — before it even launches its much-ballyhooed new $6.99 monthly SVOD service Disney+ in November.

Earlier this year, Disney CFO Christine McCarthy said ESPN+ is projected to lose $650 million annually through 2020. The company just wrote-off more than $300 million on its minority stake in Vice Media.

And the much-hyped Disney+ SVOD platform is not projected to become profitable until 2024 — three years after CEO Bob Iger plans to retire.

“Streaming requires a strong stomach for losses, especially as you are playing catch-up,” Rich Greenfield, analyst at BTIG Research, told CNBC earlier this year.

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Down the OTT Rabbit Hole

As Disney saw Netflix growing exponentially worldwide — much of it based on streaming movies and TV series based on Marvel intellectual property, it switched its business focus from SVOD enabler to over-the-top provider.

Indeed, Iger says OTT video is the company’s No. 1 focus in 2019, regardless of the financial hits to the bottom line.

Hulu, which Disney majority owns along with Comcast, lost $580 million in 2018, while BAMTech, the backend tech firm acquired from Major League Baseball Advanced Media in 2017, spearheaded another $470 million operating loss for the company’s new direct-to-consumer and international operating unit (which also includes home entertainment).

And the fiscal hits continue.

DTC & International lost $393 million in the most-recent fiscal quarter (ended March 31), up from $188 million loss in the previous-year period. Through the first half of the fiscal year, DTC has lost $529 million, twice as much was lost in 2018.

“We expect our direct-to-consumer businesses to have an adverse impact on the year-over-year change in segment operating income,” McCarthy said in an understatement on the May 8 fiscal call.

Disney, of course, can arguably absorb the losses. It generated a $12.5 billion profit on almost $60 billion in revenue in 2018. That was before closing the 21st Century Fox transaction, which could help Disney reach $100 billion in revenue.

At the same time, the Fox acquisition upped Disney’s long-term debt from $18 billion to about $52 billion. Disney is also expecting about $2 billion of cost synergies absorbing 20th Century Fox Film Corp. and related businesses.

Thus far, Wall Street appears supportive, contending the Disney brand has the best chance of narrowing the SVOD divide with Netflix.

“I think Wall Street is at least accepting of the fact that we’re doing this, that it’s the most important thing we’re doing,” Iger told Barron’s in January. “And while I won’t say they’re cheering us on, they’re definitely giving us the room to prove that we can do it.”

Marvel Studios ‘Avengers: Endgame’ Streaming on Disney+ Dec. 11

The Walt Disney Co. May 8 announced it would make the current theatrical blockbuster Avengers: Endgame, from Marvel Studios, available on its pending direct-to-consumer streaming video platform Disney+.

Disney CEO Bob Iger said the $2.2 billion (gross to date) movie would be available on Disney+ Dec. 11 – one month after the platform’s November launch.

Avengers: Endgame has generated $644.5 million in domestic ticket sales in just 12 days of release.

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Iger previously announced the SVOD service would launch with Marvel Studios’ Captain Marvel, starring Brie Larson, in addition to Black Panther and other studio hits.

Iger said Disney “did some deals” with third parties (including Netflix) to expedite the return of select titles under license agreement. He said the company remains in discussions about assuming control of other titles still under license agreement.

“We continue to explore ways that we might be able to get more back,” he said, adding that the film slate announced on its investor day already included some of the titles — notably Black Panther and Captain Marvel.

Iger said that the original landmark license deal with Netflix for its original theatrical releases included a window for early release of some titles.

“When we did the Netflix deal … even though at that point it was far off, the possibility that one day we might want to launch our own service, we carved the ability to run films on such a service,” he said. “And it paid off.”

Separately, CFO Christine McCarthy said that despite Endgame‘s impressive box office run, the film’s profitability would be initially tempered by more than $350 million in production costs, excluding marketing and theatrical revenue sharing.

Circling the OTT Wagons With Hyperbole

Ever since Disney announced it would launch a branded subscription streaming video service featuring original content and box office movies previously licensed exclusively to Netflix, a cottage industry has emerged projecting pending gloom for the SVOD pioneer.

While Disney CEO Bob Iger promises lower-priced Disney+ isn’t targeting Netflix, some pundits contend the handwriting is on the wall. Netflix is vulnerable, at the mercy of Hollywood and tech elites determined to supplant it with proprietary services.

“Granted, there’s a huge entertainment world that isn’t owned by The Mouse, but the reality of this particular cultural moment is that The Mouse is overachieving at the box office. When you can share in that, it helps your brand; when you can’t, it doesn’t,” penned the Saturday Evening Post.

True, but when does critical reasoning become opportunistic hyperbole?

Streaming Observer surveyed 500 Netflix subs and found that 15% of respondents said they might cancel their subscription for Disney+.

Just 2.2% said they actually would. That turnover is exponentially lower than Netflix’s estimated 9% churn last year.

Regardless, some media seized on the data. This ignored the reality that 20% of respondents said they planned on subscribing to both services (as Netflix CEO Reed Hastings said he would do), and 40% said they had no interest in Disney+.

Another PR publicist sent an email with the tag: “Has Disney already defeated Netflix? Why Netflix is failing to catch up?”

The argument being that since Disney acquired India’s streaming platform Hotstar with 300 million monthly viewers, Netflix’s efforts to penetrate one of the world’s most populous markets was just wishful thinking.

“Expanding existing content to new geographies may cost [Netflix] millions given the cost of global distribution and post-production,” read the email.

“It can take hundreds of post-production hours to swap out appropriate language, subtitles, and other cultural references – a huge obstacle for existing monoliths like Netflix and Hulu.”

Maybe, but Disney’s Hotstar is mainly an ad-supported VOD platform that also offers a sports/entertainment package priced at $20 monthly or $100 annually – about twice the price of Netflix (which doesn’t offer live sports).

More importantly, Netflix has made significant inroads in India with original series, “Sacred Games,” a burgeoning hit globally. With little regard to content spending ($12 billion in 2018), Netflix should have little problem filling the Indian pipeline with appropriate localized original content.

In fact, Netflix has a strong track record with creating/licensing original localized content that plays well globally.

Recent hits include “O Mecanismo” and “Casa de Papel,” in addition to “3%,” “Dark,” “Chicas de Cable,” and “The Rain,” among others.

“Disney is obviously very family-oriented content, but if you look at Netflix, it’s much broader than that,” Matthew Thornton, analyst with SunTrust Robinson, wrote in a note last year.

Thornton contends Netflix’s wider range of content plays well to a global audience.

“As such, we don’t view Disney+ as a strong alternative to Netflix,” he wrote.

 

 

 

 

 

 

 

Survey: More Than 14% of U.S. Netflix Subscribers May Cancel It in Favor of Disney+

More than 14% of U.S. Netflix customers are considering ditching their subscription in favor of Disney+ when the new streaming service launches in November, which could amount to a loss of approximately 8.7 million subscribers for the streaming pioneer.

Those are the findings of a survey of more than 600 U.S. Netflix subscribers commissioned by Streaming Observer.

In the survey, 12.7% said they “might cancel Netflix” while 2.2% said they would “definitely cancel Netflix” and get Disney+.

Survey respondents with kids in their household were more than two times as likely to say they plan to cancel Netflix for Disney+.

Roughly two in five Netflix subscribers in the survey said they will try Disney+, which costs $6.99 per month ($69.99 per year), when it debuts. One-fifth of those surveyed said they plan on subscribing to both services, and 40% said they have no interest in Disney+.

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Reed Hastings Welcomes Pending Netflix SVOD Competitors

Netflix co-founder/CEO Reed Hastings has steadfastly championed new competitors in the burgeoning subscription streaming video-on-demand ecosystem.

With the arrival of an Apple streaming video service expected to be announced on March 25 — without Netflix, according to Hastings — followed by Disney+ at the end of the year, and over-the-top platforms from WarnerMedia and Comcast in 2020, Netflix is about to get its most-serious streaming competition since launching OTT service in 2007.

Hastings, per usual, is taking it all in stride.

“We will make this a better industry if we have better competitors,” the CEO told attendees March 18 at Netflix’s Los Angeles headquarters. “All we have to do to succeed is to continue to stream great content and not get too distracted.”

Indeed, with the service projected to reach 148 million paid subscribers worldwide by the end of the first quarter (ended March 31), Netflix has effectively become the largest pay-TV service globally.

At the same time as subscribers consume increasing amounts of original and third-party content, Netflix is winning the battle for OTT video eyeballs.

“I think of it as us winning time away — entertainment time — from other activities,” Hasting said in January on the fourth-quarter webcast. “So, instead of doing Xbox and Fortnite or YouTube or HBO or a long list, we want to win and provide a better experience, [with] no advertising, on-demand [and] incredible content.”

The executive said Netflix — unlike branded services such as HBO, Showtime and Starz — offers content across a wide spectrum genres and interests, which Hastings characterized as a well-balanced stock portfolio.

“We compete so broadly with all of these providers that any one provider entering only makes a difference on the margin,” he said in January. “So, that’s why we don’t get so focused on any one competitor. I really think our best way is to win more time by having the best experiences in all the things that we do.”