Disney Ups Hulu 2018 Equity Loss to $250 Million

The Walt Disney Co. Feb. 6 revealed it expects more than $250 million in equity losses on Hulu in 2018. The revised projection is up from a previously disclosed loss of $100 million.

Disney co-owns (30%) Hulu, which has about 17 million subscribers, with 21st Century Fox (30%), Comcast (30%) and Time Warner (10%).

Disney would become majority owner of Hulu should its $52.4 billion acquisition of select Fox assets pass regulatory muster.

On the fiscal call, CFO Christine McCarthy said about a third of the loss ($82.5 million) would impact second quarter (ending March 31) financial results.

The executive said the increased losses are due to content licensing between Hulu’s equity owners. As a stake holder, Disney expects to recoup the loss through Disney-ABC Television Group content sales as well as various affiliate network revenue.

Disney is on the hook for about $450 million in capital contributions to Hulu in 2018, according to a regulatory filing.

On the fiscal call, Disney CEO Bob Iger said following the end of Netflix’s exclusive pay-TV distribution of its original Marvel, Pixar and Lucasfilm movies, all titles released in 2019 would be distributed through proprietary digital channels, including possibly Hulu.

“Hulu has an existing output deal with HBO that will last longer by a few years the deal we have with Netflix,” Iger said.

He said it remains Disney’s intention following closure of the Fox deal to grow the global direct-to-consumer business taking advantage of combined studios’ production output.

“We fully hope to expand our production of intellectual property under those [Fox, Disney] umbrellas — studio and television to feed multiple direct-to-consumer businesses that we own,” Iger said.



Disney Q1 Home Entertainment Sales Decline

Walt Disney Studios Home Entertainment Feb. 6 said first-quarter (ended Dec. 30, 2017) revenue declined 29% to $390 million due to lower unit sales of Pixar’s Cars 3 compared to Finding Dory in the previous-year period. The studio generated $547 million in sales in the previous-year period.

Cars 3 generated $44.1 million on more than 1.7 million combined DVD/Blu-ray Disc sales, according to The-Numbers.com. Finding Dory generated $84.4 million on more than 4.7 million disc sales in 2016. Totals do not include 4K UHD Blu-ray and digital retail.

The decline is relative considering Cars 3 remains the 13th best-selling disc in 2017. Indeed, Disney had six of the top 14 selling discs in 2017.

Lower home entertainment revenue was due to a 23% drop in unit sales and 3% dip in average net effective pricing — the wholesale selling price adjusted for discounts, sales incentives and returns.

Overall studio revenue for the quarter was flat at $2.5 billion and segment operating income decreased 2% to $829 million as an increase in theatrical distribution was more than offset by decreases in home entertainment and TV/SVOD distribution results as well as lower income from consumer products & interactive media segment revenue share.

TV/SVOD and other distribution revenue dropped 7% to $945 million from $1.01 billion last year.

Theatrical revenue reflected the success of Star Wars: The Last Jedi and Thor: Ragnarok in the current quarter compared to Rogue One: A Star Wars Story and Doctor Strange in the prior-year quarter. Other significant releases in the current quarter included Coco, while the prior-year quarter included Moana.

Indeed, Moana was the top-selling disc in 2017 with more than $114 million in revenue from combined disc sales of more than 4.3 million units.

Lower TV/SVOD distribution results were primarily due to a decrease from pay-television driven by the domestic availability of two key titles in the prior-year quarter compared to one key title in the current quarter.

The prior-year quarter included Captain America: Civil War and Jungle Book, while the current quarter included Guardians of the Galaxy Vol. 2.

SVOD, Studios Ready Super Bowl LII Ads

Amazon Studios will showcase its first Super Bowl ad for a TV show or movie when it airs a trailer for episodic series, “Tom Clancy’s Jack Ryan,” starring John Krasinski (“The Office”) – the fifth actor to play the title character after Alec Baldwin in The Hunt for Red October in 1990.

Amazon will also run a humorous ad for voice-controlled Alexa losing her voice, with baffled CEO Jeff Bezos asking, “How is that even possible?”

“People are aware of Prime video, but they’re not always aware that they get this award-winning programming as part of the membership,” Mike Benson, head of marketing for Amazon Studios, told The Los Angeles Times.

The Big Game, which boasts a domestic TV audience of 100 million, again promises to be a showcase for Hollywood studios and subscription streaming video mainstays spending upwards millions per spot.

Few studio ads have been confirmed, but online speculation is rampant.

Paramount Pictures has myriad options, including spots for Krasinski’s horror thriller, A Quiet Place, in addition to Tom Cruise’s Mission: Impossible – Fallout, among others.  Universal Pictures has spots for Jurassic World: Fallen Kingdom, Dwayne Johnson’s Skyscraper and Fifty Shades Freed.

Walt Disney Studios could run ads for Black Panther and Avengers: Infinity Wars, among others. Warner Bros., Sony Pictures and 20th Century Fox reportedly are not airing ads.

Hulu, which aired a 2017 Super Bowl ad for original series, “The Handmaid’s Tale,” undoubtedly will run another spot considering corporate co-owner Comcast (NBC Sports) is broadcasting the game.

Netflix might air an ad for a Cloverfield sequel. The third installment in the franchise originally was set to be distributed by Paramount, until it wasn’t. Scuttlebutt at the Sundance Film Festival had Netflix acquiring global rights.

Vice Chairman: Lionsgate ‘Very Interested’ in Third-Party Merger

Lionsgate is shopping – itself.

With AT&T’s $85.4 billion acquisition of Time Warner in regulatory limbo, and Walt Disney’s $52.4 billion acquisition of select 21st Century Fox assets, including 20th Century Fox, pending, big media mergers are on the mind of Michael Burns, vice chairman of Lionsgate.

With a $7 billion market cap, Burns says Lionsgate is a “pint-sized bite” for potential suitors compared to “800-pound” gorillas like AT&T. Speaking on CNBC, Burns reiterated the usual “enhancing shareholder value” mantra driving publicly-traded companies like Lionsgate to acquire or be acquired.

Burns was quizzed about the likelihood of Lionsgate merging with Verizon, Comcast, Amazon or possible reunified Viacom/CBS.

He said merging with a telecom such as Verizon could be a big deal, provided the telecom decided what businesses it wants to be in. Burns was alluding to Verizon CEO Lowell McAdam, who, on the fiscal call, said the telecom wasn’t looking at any M&A activity in the short-term.

Burns said he is very interested in the outcome of the DOJ’s antitrust lawsuit against the AT&T/Time Warner merger. The executive called Comcast’s $30 billion acquisition of NBC Universal in 2011 the deal of the century.

“Again, you have to show organic growth or you have to make acquisitions, like us, which would be a bolt-on acquisition for [Comcast],” Burns said.

He said Lionsgate is talking to other media companies “all the time to see if a deal makes sense.”

Merging with Amazon would seem realistic given the ecommerce behemoth’s 70 million Prime members and ongoing content deals between the two companies, including movies The Big Sick and Oscar winner Manchester by the Sea.

“We’re a customer of Amazon and we are doing a lot of business with them,” Burns said. “We think there is more and more to do with them.”

He said media companies, particularly in the tech space, have to decide whether they want to “build it” or “buy it” when determining how far ahead the competition is in the streaming and subscription business.

“We’re very interested in the consolidation space,” Burns said. “Obviously that’s very important to us.”

U.K. Regulator Rules Against Fox/Sky Merger

Rupert Murdoch’s quest to acquire outright control of British satellite operator Sky Jan. 23 suffered a setback after a government regulator found the $15 billion acquisition by 21st Century Fox would not be in the public interest. Fox currently owns 39% of Sky.

Following referral from the Secretary of State for Digital, Culture, Media and Sport, the Competition and Markets Authority (CMA) had been tasked with investigating the deal’s media plurality and commitment to broadcasting standards.

Specifically, the CMA found media plurality concerns for viewers on a Fox-owned Sky, including access to a wide range of political viewpoints.

The group found that due to its control of News Corp, the Murdoch family has significant influence over public opinion. Full ownership of Sky by Fox would strengthen this even further.

The watchdog said media plurality goes to the heart of the U.K.’s democratic process and as such is given legal protection.

CMA said the ruling did not involve a lack of a “genuine commitment” by Fox/Sky meeting broadcasting standards in the U.K.

“Our in-depth investigation also considered whether the deal would be against the public interest regarding broadcasting standards,” Anne Lambert, chair of CMA, said in a statement. “Due to their existing track record in the U.K., and the range of policies and procedures the companies involved have in place to ensure broadcasting standards are met, we did not find public interest concerns in this regard.”

Notably, should U.S. regulators okay Walt Disney’s $50 billion acquisition of 20th Century Fox, Disney would assume control of Fox’s stake in Sky.

The CMA will present a final report to Matthew Hancock, secretary of state for digital, culture, media and sport, by May 1. Hancock will make the final decision on the proposed deal.


Verizon Eyes 5G Future as Fios TV Ups Sub Losses

Verizon Jan. 23 announced it plans to roll out 5G wireless functionality in upwards of five major cities in the second half of this year – the first wireless carrier to do so.

The technology should dramatically increase streaming video speeds, with 5G download speeds up to 10 gigabits-per-second compared to one gigabit-per-second for 4G LTE. The higher speed could result in downloading a HD movie in seconds.

Verizon aims to harness 5G technology with its new Oath platform, whose content brands include Yahoo, HuffPost, AOL, Tech Crunch and Engadget, among others.

The telecom, which recently inked license deals with the NBA and NFL, added 47,000 Fios high-speed Internet customers to end the fourth quarter (ended Dec. 31, 2017) with 5.9 million subs.

“The next industrial revolution will be on Verizon’s [5G] network and will positively impact society like no technology we have seen before,” CEO Lowell McAdam boasted on the fiscal call.

Meanwhile, Verizon’s pay-TV platform, Fios video, lost 29,000 subs in the quarter, to end the year down 75,000 subs at 4.6 million.

When asked whether Verizon would follow in the footsteps of AT&T and Walt Disney seeking to acquire a media company, McAdam punted. The executive admitted Disney’s acquisition of 20th Century Fox underscores the value of scale in the market place.

McAdam said the jury is out regarding the merits of Verizon acting as an independent distributor of content compared to owning and creating content.

“I think until all of this media consolidation [AT&T/Time Warner, Disney/Fox] shakes out, you really can’t determine whether that’s a path we would be interested in,” he said. “But I can say unequivocally there is nothing going on right now without considering a large media play [involved].”

“In fact, if you look at our actions like the NBA and the NFL announcement … we think being able to monetize through advertising and being independent is a very good place to play for us right now.”

Wall Street remains on the fence regarding Verizon’s first-mover 5G strategy.

“5G is going to be a hundred times faster than your typical Internet service, so not only is it going to be faster, it’s going to have better margins and give Verizon a ton of opportunity for new customer growth,” Michelle McKinnon, analyst with Payne Capital Management, told CNBC.

Jonathan Chaplin, analyst with New Street Research, said that while 5G enables Verizon to bridge technology divides in the market, doing so comes at a major fiscal cost.

“We’ve pegged it at least at $35 billion dollars,” Chaplin said. “That’s going to [more than] absorb the gains [Verizon is] going to get in tax reform savings over the next four or five years — which I don’t think the market is anticipating.”





‘Moana’ Named Top-Selling Disc of 2017

NPD’s VideoScan DVD and Blu-ray sales tracking service has reported Walt Disney Studios Home Entertainment’s Moana as the top-selling disc of 2017 in the United States.

The animated film outpaced No. 2 Rogue One: A Star Wars Story, from Disney’s Lucasfilm division, according to VideoScan.

The top 10 titles on VideoScan’s list of 2017’s top-selling combined DVD and Blu-ray units were:

  1. Moana (Disney)
  2. Rogue One: A Star Wars Story (Disney/Lucasfilm)
  3. Sing (Universal)
  4. Wonder Woman (Warner)
  5. Guardians of the Galaxy Vol. 2 (Disney/Marvel)
  6. Fantastic Beasts and Where to Find Them (Warner)
  7. Logan (Fox)
  8. Spider-Man: Homecoming (Sony Pictures/Marvel)
  9. The Fate of the Furious (Universal)
  10. Doctor Strange (Disney/Marvel)


The VideoScan list differs slightly from the top 10 reported by tracking website The-Numbers.com, which reports unit sales and revenue based on estimates and industry surveys, though Moana was the top title on both lists.

The top 10, according to tracking from The-Numbers.com, were:

  1. Moana (Disney), 4.12 million units, $109.7 million
  2. Beauty and the Beast (Disney), 4.08 million units, $82.38 million
  3. Rogue One: A Star Wars Story (Disney/Lucasfilm), 3.75 million units, $77 million
  4. Trolls (DreamWorks), 3 million units, $65.47 million
  5. Guardians of the Galaxy Vol. 2 (Disney/Marvel), 2.85 million units, $57.3 million
  6. Sing (Universal), 2.81 million units, $57.42 million
  7. Wonder Woman (Warner), 2.61 million units, $68.77 million
  8. Fantastic Beasts and Where to Find Them (Warner), 2.4 million units, $51.03 million
  9. Logan (Fox), 1.94 million units, $41.02 million
  10. The Fate of the Furious (Universal), 1.78 million units, $40.2 million

Lionsgate Stock Jumps on Acquisition Scuttlebutt

Lionsgate’s stock took a mid-morning bounce Jan. 18 following media reports the studio/distributor is in the M&A crosshairs of media giants Amazon, Verizon, CBS and Viacom.

Shares increased 5% the day after a Deadline.com report – citing sources familiar with the situation – said the Santa Monica, Calif.-based company was in active merger discussions. Lionsgate shares have increased 20% in value since last November.

Lionsgate, which is headed by CEO Jon Feltheimer, has a box office hit in Wonder, which has generated $120 million at the box office since Thanksgiving. The studio ranks fourth in nascent domestic box office.

With Disney’s pending $52.4 billion acquisition of 20th Century Fox, consolidation within the media industry has renewed interest as online powers Netflix and Amazon expand their entertainment prowess globally.

Lionsgate, which has a robust home entertainment business, in addition to multiple digital ventures, is also a major producer of television content. The company’s $4.4 billion purchase of Starz in 2016 underscoring further its presence in premium television.

The company has also expressed interest in ancillary revenue streams, including a theme park in South Korea and live theatrical productions – ventures that require significant capital investment.

Last August, Reuters reported merger negotiations between Lionsgate and Hasbro ended following an impasse on the price.

Michael Burns, vice chairman of Lionsgate, last month told CNBC the Disney/Fox pact was good news since it eliminates one competitor from the market, while further validating the value of content.

“I think Lionsgate actually thrives in chaos. You’re in a place right now where you are going to see serious consolidation out there,” Burns said.

Lionsgate reports third quarter results Feb. 8.

Redbox Cites ‘First Sale Doctrine’ Defense Selling Disney Digital Movie Codes

Redbox has filed a counter-claim against The Walt Disney Co.’s lawsuit claiming the kiosk vendor is illegally selling digital codes to select movies.

Filed Jan. 16 in U.S. District Court in Los Angeles, Redbox claims it has the right under the “first sale doctrine” to sell digital codes included in packaged media retail releases. The doctrine enables consumers of books, music CDs and physical media the right to resell the content.

Redbox, which has no distribution agreement with Walt Disney Studios Home Entertainment, acquires Disney titles through third-party sources, offering digital codes at a significant discount to other third-party online vendors.

Disney argues its packaged media release include specific language prohibiting the sale or transfer of included digital codes.

Redbox, per the complaint, said it has invested more than $700,000 launching a digital service. It says Disney’s legal action is anti-competitive.

Redbox in October began selling digital codes — typically included in Blu-ray Disc releases — of select Disney movies accessible on the kiosk vendor’s website and playable on compatible media devices.

Dubbed “Digital Codes At The Box,” the program offers access to Beauty and the Beast, Alice Through the Looking Glass, Guardians of the Galaxy Vol. 2, Maleficent, Inside Out, The Jungle Book, Pete’s Dragon, The BFG, Rogue One: A Star Wars Story, Doctor Strange, Finding Dory and Moana.




Disney’s ‘Coco’ Due on Home Video in February

Walt Disney Studios Home Entertainment will release Pixar’s Coco digitally in HD, 4K and Movies Anywhere on Feb. 13, and on Blu-ray, 4K Ultra HD Blu-ray, DVD and on-demand Feb. 27.

Coco, the story of a 12-year-old aspiring musician’s journey to the magical land of his ancestors in Mexico, earned $193.5 million at the domestic box office and won the Golden Globe for Best Animated Motion Picture.

The Blu-ray and digital formats include deleted scenes; promotional trailers for the film; commentary from director Lee Unkrich, co-director Adrian Molina and producer Darla K. Anderson; and several featurettes: “The Music of Coco”; “Paths to Pixar: Coco,” featuring how the filmmakers’ personal stories resonate with the themes of the film; “Welcome to the Fiesta,” a musical exploration of the skeletons from the Land of the Dead; “A Thousand Pictures a Day,” a tour of Mexico with the filmmakers; “Mi Familia,” about developing the Riveras; “Land of Our Ancestors,” about re-creating many eras of Mexican architecture; “Fashion Through the Ages,” about the costumes; “The Real Guitar,” about the design of the central guitar in the film; “Dante,” about the inspiration for the dogs that inspired the character; “How to Draw a Skeleton”; “How to Make Papel Picado,” a look at the traditional papel picado art form; and “Un Poco Coco,” a montage of original animated pieces used to promote Coco.

The DVD includes the commentary, “Dante” and “About Coco.”