Disney News Confirmed By 1st Quarter Earnings Report
During the first quarter revenue report, The Walt Disney Company’s leadership group delivered new details about some of their most anticipated projects. Here are the pertinent facts you need to know about the short-term future of Disney.
ESPN Plus Is Almost Here
Perhaps the most shocking revelation involved ESPN. The Worldwide Leader is a sore spot for many Disney investors, as the cord cutting trend has eaten into ESPN’s profits. The formerly dominant cable channel remains a tremendous revenue source for Disney. Unfortunately, ESPN has long-term contracts with several major sports, and many of them seem unlikely to return the expected investment, causing frustration for both Disney and its stockholders.
Last year, Disney CEO Robert Iger revealed a plan to enhance ESPN’s revenue stream. He announced that ESPN would add an app specially designed for cord cutters. It would give people without cable television the ability to watch ESPN for a modest monthly fee. Since ESPN’s carriage fees are $7.21 per customer, the expectation for this service was a cost of $10 per month or so. Later, rumors persisted that it would come in even lower at $6.99 per month.
During the first quarter earnings report, Iger shocked analysts by announcing the price point for the service called ESPN Plus. It will cost only $4.99 per month. That’s obviously much lower than expected. It wasn’t the only surprise, either. Iger also indicated that the service will launch in the spring, several months earlier than projections had indicated. Yes, ESPN Plus is almost here, and it’s going to have a price point that should entice a lot of consumers.
What We Learned about ESPN Plus
Here is Iger’s full ESPN quote from the earnings report conference call:
“This subscription service will feature thousands of additional live events, giving fans access to more leagues, more teams and more games than ever before, including Major League Baseball, Major League Soccer and the NHL, along with a rich array of college sports, as well as Grand Slam Tennis, Boxing, Golf, Rugby and Cricket, that aren’t available on the ESPN linear networks.
Additionally, ESPN Plus will feature the full library of ESPN Films, including the highly acclaimed 30 for 30 documentary series; and we’re also creating a robust slate of high-quality original content exclusively for this platform.
As I noted earlier, we’ll introduce this new app with its direct-to-consumer component this spring, and we’re pricing ESPN Plus at $4.99 per month. It will be available on a variety of platforms at the time of launch, including iOS, Android, tvOS, Chromecast, with more to follow. We’re very excited to bring this product to market, an opportunity created by our BAMTech acquisition. We plan to invest further in the direct-to-consumer feature, adding more live games and produce sports programming, along with even greater personalization in the years ahead.”
There’s a lot to unpack here, but the big story is that the new Disney service will deliver consumers direct access to thousands of live major sporting events for less than the cost of a ticket to a high school football game. ESPN’s also prioritizing hockey more now, along with less celebrated sports in America such as rugby and cricket. These events will appeal to Americans who are otherwise ignored by ESPN.
Disney’s goal here is clear. The company wants their new app to become the go-to product for sports, just as was true of ESPN for the body of 35 years. At only $5 per month, the big question is how profitable this venture can be for Disney.
Thanks to the BAMTech acquisition, they will have low overhead. They control the broadcasting medium, but they’ll still pay for the production crew and commentators onsite plus the participants in each competition. A reasonable expectation is that ESPN Plus will increase in price over time as cable television viewers decline in volume.
Along those lines, Disney hopes to indoctrinate an entirely new generation of sports fans, the ones raised in the cord cutter generation. Their plan with BAMTech’s ESPN Plus service is to allow extreme personalization. The app will learn which sports and teams interest you the most. It will alert you to potential games and news items of note. You can then watch or read them on your smart device. Alternately, you can use Apple Airplay or a similar network app to stream the game to your television. ESPN Plus is the future of broadcast sports.
Disney’s Next Channel
Iger wasn’t as forthcoming about the other upcoming Disney app. Their ostensible Netflix killer is a competing streaming service using Disney intellectual properties (IP). Disney’s previously announced that they’ll create movies and televisions series specifically for this new platform.
While Iger was scarce with the details, he did throw out a few tidbits. The most noteworthy item is that Disney’s streaming service will have less content than Netflix. They’re prioritizing quality over quantity. He was cagey about the potential implementation of Fox media properties, presumably because that deal won’t be finalized until the fourth quarter of this year. He’s not counting unhatched chickens. Any comments he made were largely in the third person, as a curious observer of Fox’s properties rather than someone in possession of them.
Here are Iger’s precise comments on Fox if you’re interested:
“I think the way to look at the revenue opportunities, as particularly as it relates to production, is to consider the fact that what we’re buying here is significant production capabilities and, with that, the talent to produce on our behalf. The production or the output that we’re buying from those entities will flow through our studio in both the tent-pole movie direction, but also in, we’ll call it, specialty movie direction, the Fox 2000 and the Fox Searchlight businesses, as a for instance. And there is also capability there to make films for direct-to-consumer experiences.
In addition to that, Fox has had significant success on the television studio front, Modern Family, This is Us, two very specific examples of that, as well as on the FX studio front, where they produce a number of the series that are on FX.”
He later added comments about when the Fox deal could execute:
“We don’t really have any update on the regulatory front. We’re going through the process, which is significant, because of the number of jurisdictions that we have to file in and the size and the complexity of this deal. And as much as we’d love to be at a point where we’d gain regulatory approval and we’re integrating the companies, we know from the absolute beginning just how patient we have to be in this regard. So there is nothing to update you on there.”
Star Wars and Other Final Thoughts
What we did learn is that the creative team responsible for Game of Thrones is doing a Star Wars trilogy. That’s in addition to the current one plus another planned trilogy. Disney’s apparently got nine different Star Wars movies on the docket right now, two of which debut in 2018 and 2019.
So, you shouldn’t think that Star Wars is over for a while after you watch Episode IX. To the contrary, Rian Johnson and the Game of Thrones producers are working on two separate new film series. Disney also confirmed that multiple Star Wars-based live action television programs are in development. These will air exclusively on Disney’s new app. The company’s end-goal is to build a Star Wars Universe akin to the Marvel Cinematic Universe.
Finally, Disney chose not to announce its price point for their main streaming service. My uninformed opinion is that we’ll probably learn it a year from now when they do the first quarter earnings report for 2019.
Note: All transcript quotes appear thanks to SeekingAlpha.com. You can view the transcript in its entirety at this link.
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