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.”

Disney Re-Names BAMTech ‘Disney Streaming Services,’ Outlines Direct-to-Consumer Strategy

Disney April 11 announced it has renamed its BAMTech backend technical company “Disney Streaming Services” as part of the 96-year-old media giant’s expansion into direct-to-consumer business.

Acquired for $2.5 billion in 2017 from Major League Baseball Advanced Media, BAMTech has powered numerous OTT services, including HBO Now, MLB.tv, PGA Tour Live, ESPN+, and NHL.tv, among others.

“This is an exciting day for the entire Disney family. It is also a challenging time,” CEO Bob Iger told attendees at the start of a three-hour investor day presentation in Los Angeles.

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The executive reiterated that Disney is entering the DTC ecosystem from a “position of strength, confidence and unbridled optimism.”

Iger said Disney is banking its future in part on digital distribution, including a new corporate segment — Direct-to-Consumer & International — featuring the pending Disney+ SVOD service, ESPN+, Hulu, Hulu with Live TV and Asia’s Hotstar ad-supported VOD platform with 300 million actively monthly users.

Kevin Mayer, chairman of DTC & International, said Disney’s foray into digital is based in part of a projected 1.1 billion high-speed Internet households worldwide by 2020 compared to 700 million in 2015.

Mayer said there will be 810 million DTC paid subscribers globally by the end of 2020 — growing 30% annually. With 1.2 billion hours of video streamed daily projected by 2020 compared to 260 million hours in 2015 — up 50% annually over a 10-year period.

[DTC] is becoming a crowded marketplace, in which brands matter more than ever,” Mayer said. “We have the brands that matter most when it comes to great entertainment.”

Mayer said Disney three domestic DTC products — Disney+, ESPN+ and Hulu — would target different market segments as standalone services and “likely be bundled to create even more value to consumers.”

Disney is eyeing a Latin America launch for ESPN+ as well.

Launching in November, Disney+ will feature catalog, current and original content from Disney, Marvel, Pixar, Lucasfilm and National Geographic — the latter due to Disney’s $71.3 billion acquisition of 20th Century Fox.

Mayer said Hulu, which Disney assumed majority ownership stake following the Fox acquisition, represents Disney’s most-established DTC product.

“We’re actively evaluating international rollout strategies for [Hulu],” he said.

Disney said Hulu was the fast-growing domestic SVOD service in 2018, ending the year with 25 million subscribers since launching in 2008. Online TV service — Hulu with Live TV — launched in 2018. Viewing increased by 75%.

“Hulu is going to give consumers the right product at the right price,” said Hulu CEO Randy Freer.

Brazil Approves Disney/20th Century Fox Merger

Brazil regulators have approved The Walt Disney Co.’s $71.3 billion acquisition of 20th Century Fox Film and related businesses — paving the way for consummation of the Hollywood mega-merger first announced in December 2017.

The slow-moving antitrust hurdle represented one of the last challenges to Disney’s merger with Rupert Murdoch’s 21st Century Fox entertainment division.

Brazilian authorities sought and achieved Disney’s divesture of Fox Sports channel in the South American country. Disney also owns ESPN Brazil channel. Fox Sports owns rights to key soccer competitions in the region.

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A similar situation exists in the U.S. where the Justice Department ruled Disney has to sell off its stake in 22 regional Fox Sports channels since it owns ESPN.

European Union officials ordered Disney sell its European — not U.S. — stake in A&E Networks.

“Currently, there is only one big-screen rival capable of competing with these channels,” Brazil’s Administrative Council for Economic Defense said in a statement as reported by the Los Angeles Times. The agency said separating Fox Sports from Disney “aims to eliminate competitive concerns in the pay-TV sports channel market.”

Disney Forgoing $150 Million in License Revenue Withholding ‘Captain Marvel’ From Output Deals for Pending SVOD Service

The Walt Disney Co. offered some insight on the financial impact its pending Disney+ SVOD service will have on existing distribution models.

Speaking on the Feb. 5 fiscal call, CFO Christine McCarthy said the company would forgo about $150 million in third-party license revenue in fiscal 2019 for the Q4 launch of the subscription streaming video service.

McCarthy added that the pending theatrical release Captain Marvel, with Brie Larson starring as Disney/Marvel’s first female superhero solo lead, would be excluded from traditional output deals in favor of Disney+.

“So that’s where you can see the forgone licensing revenue begin,” she said.

Disney plans to showcase the Disney+ service on its annual investor day on April 11.

“We’ll also take that opportunity to provide detailed insight into our overall DTC business,” said CEO Bob Iger.

Separately, Iger said he expects to expand Hulu into foreign markets once acquisition of select 21stCentury Fox assets (including Fox’s 30% stake in Hulu) is completed.

“We’ll own 60% when the [Fox] deal closes, and we’ll be prepared to talk more, perhaps, about Hulu’s strategy at that point,” he said.

“Having already designed much of the integration process, we are prepared to start effectively combining our businesses as soon as we obtain regulatory approval from the last few remaining markets,” added Iger. “We look forward to working with the tremendous teams at 21st Century Fox to create the world’s premier global entertainment company.”

 

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.”

Netflix, Amazon Prime and Hulu Lead Parks Associates Top 10 OTT Services List

Netflix, Amazon Prime and Hulu, in that order, lead Parks Associates updated list of the top 10 subscription over-the-top (OTT) video services in the U.S. market. The list, released Nov. 7, is based on estimated number of subscribers.

The full list in order is:

  1. Netflix
  2. Prime Video Users (Amazon Prime)
  3. Hulu (SVOD)
  4. HBO Now
  5. Starz
  6. MLB.TV
  7. Showtime
  8. CBS All Access
  9. Sling TV
  10. DirecTV Now

 

“Which company is the leading OTT video subscription service remains a topic of debate,” said Brett Sappington, senior director of research, Parks Associates, in a statement. “According to our estimates, Amazon has more Prime Members than Netflix has subscribers. However, when you consider only those Prime Members that use Prime Video, Netflix is the largest. Hulu remains the third largest but continues to grow its subscriber base.”

The firm noted the rise of a second tier of OTT video services from services with recognized brands, including several with high profile original content. Online pay-TV services Sling TV and DirecTV Now round out the top 10, ahead of similar services Hulu with Live TV, YouTube TV and PlayStation Vue. Online pay TV has been one of the fastest growing segments in the OTT video space, with aggressive marketing by all, according to Parks.

“HBO, Starz, Showtime, and CBS All Access demonstrate the powerful attractiveness of original content through series like ‘Game of Thrones’ and ‘Star Trek: Discovery,’” Sappington said in a statement. “This pattern suggests new services such as WarnerMedia’s DC Universe and the forthcoming streaming service from Disney could achieve success quickly.”

The top subscription sports OTT video services are MLB.TV, WWE Network and ESPN+. MLB.TV continues to lead the sports OTT subscription category, benefiting from its long tenure as a streaming service and popularity among dedicated baseball fans, according to Parks. WWE also has a dedicated fan base and publicly reported having more than 1.2 million U.S. subscribers at the end of Q3 2018, according to Parks. ESPN+ is a newcomer to the OTT video marketplace but recently announced that it had exceeded 1 million subscribers.

Other findings include:

  • OTT video subscription penetration has reached 64% of U.S. broadband households, with more than two-thirds subscribing only to one of the top three services, Netflix, Prime Video, or Hulu;
  • The online pay-TV audience is similar to the OTT audience — they are younger and quicker to adopt new technologies when compared to traditional pay-TV households; and
  • Over the past three years, OTT churn rates have gradually fallen each year from 31% of OTT subscriptions cancelled each year in 2015 to 28% in 2018.

Sling TV Q3 Subscriber Growth Plummets

Dish Network Nov. 7 reported third-quarter (ended Sept. 30) loss of 367,000 pay-TV subscribers compared to a gain of 16,000 subs in the previous-year period – the latter largely attributable to an increase in Sling TV subs.

The Denver-based satellite TV operator ended the period with 10.28 million pay-TV subs compared to 13.2 million subs last year. Sling TV, the industry’s first online TV platform gained 26,000 subs – a fraction of the reported 240,000 subscribers added in the previous-year period.

Indeed, Sling TV, which was the first platform to offer standalone access to Disney-owned ESPN and has been offsetting Dish Network pay-TV sub losses since it launched in 2015, ended the period with 2.37 million subs. It ended 2017 with 2.21 million subs.

Dish TV’s average monthly subscriber churn rate (subs not renewing service) was 2.11% versus 1.82% for third quarter 2017.

It remains to be seen whether Dish decides to incorporate Sling TV with Amazon Channels, the ecommerce behemoth’s platform affording Prime members direct access to third-party over-the-top video services.

Services such as HBO Now, Cinemax, Lionsgate’s Starz OTT, CBS All Access, Showtime OTT and Cinedigm’s Dove Channel, have attributed much of their subscriber growth to Amazon – which in turn collects revenue-sharing and proprietary subscriber data for its distribution channel.

On the fiscal call, Charlie Ergen, co-founder and chairman of Dish, said the slowdown in sub growth at Sling had more to do with the growth of the OTT video ecosystem than consumer indifference.

“You’re seeing major [online TV] players that are all gaining subscribers, and everybody has a little different offering, a little bit different slew of channels, a little bit different interface,” Ergen said. “Obviously, Disney has talked about going direct to the consumer. So, you’re going to see an awful lot of people in the category, and at some point there will be too many, and at some point there will be a consolidation.”

 

 

 

Russell Wolff Upped to GM of Streaming Platform ESPN+

Longtime ESPN executive Russell Wolff has been named EVP and GM of ESPN+, the branded over-the-top video streaming service, it was announced Oct. 31 by Michael Paull, president, Disney Streaming Services, to whom Wolff will report.

In his new role Wolff will be responsible for managing ESPN+, which recently topped 1 million subscribers, in addition to collaborating on the overall management and commercialization of ESPN-branded digital products.

“His strong business acumen and exceptional leadership qualities make him the perfect leader to advance the growth of ESPN+ as we continue to evolve the service,” said Paull, a former senior executive at Amazon Prime Video.

Most recently, Wolff served as EVP and managing director, ESPN International, where he was responsible for all of ESPN’s international businesses, which grew to reach multiple countries and territories across all seven continents.

As part of his previous role, Wolff guided ESPN’s digital expansion around the world, including the launch of mobile, online and streaming platforms, helping it establish a position as the number one digital sports brand globally. He led ESPN’s digital media teams to grow their global digital media portfolio, which included more than a dozen localized editions of ESPN.com and the ESPN app, ESPNFC (global football vertical), ESPNCricinfo (global cricket vertical), ESPN’s streaming platforms (including WatchESPN) and multiple other digital initiatives.

He also was a key driver of ESPN’s continued growth and leadership in Latin America. Under his direction, ESPN’s offerings grew into a multimedia business that includes 13 television networks, the most diverse portfolio of programming and sports events, and the operation of production facilities and offices in Argentina, Brazil, Colombia and Mexico.

Wolff first joined ESPN International in 1997 as vice president, managing the company’s business interests in the Pacific Rim.  In 1998, he joined ESPN Star Sports, as VP of programming and event management and was later promoted to SVP.  Wolff returned to ESPN in 2000 as SVP, overseeing programming, marketing, and the company’s businesses in Asia, Europe, the Middle East, and Africa.

After graduating from Dartmouth College, Wolff began his career at the Leo Burnett Company in Chicago.  Shortly afterwards, he returned to Dartmouth and received his M.B.A. from the Amos Tuck School of Business Administration.  He will continue to lead ESPN’s involvement with the Special Olympics.

 

Streamer DAZN Inks Mexico Boxer Canelo Álvarez to Record $365 Million Fight Contract

In a move that could elevate OTT video in live sports, DAZN, the nascent London-based fight streaming platform, has signed Mexican boxing champion Canelo Álvarez to a 11-fight, $365 million fight deal – reportedly the richest athlete contract in history.

In addition to the size of the contract, which runs through 2023, the deal transfers boxing’s biggest draw from the lucrative pay-per-view market to a $9.99 monthly streaming service.

Indeed, Álvarez, the current WBA and WBC middleweight champion, most-recently defeated Gennady Golovkin in a rematch that generated more than $94 million in pay-per-view revenue – based on a $84.95 PPV price tag. The fight generated 1.1 million PPV transactions.

“Canelo is the highest-paid athlete in the world,” Oscar De La Hoya of Golden Boy Promotions, told ESPN. “He’s extremely happy.”

The deal comes as HBO recently announced it would cease live boxing broadcasts after 35 years.

Álvarez’ first fight under the DAZN deal is against Rocky Fielding on Dec. 15 in Madison Square Garden.