Disney to ditch Netflix Inc and launch two streaming services of its own

Streamed media giant Netflix Inc (NASDAQ:NFLX) was dealt a blow as Walt Disney Co (NYSE:DIS) announced plans last night to launch its own streaming services.

The film studios and theme parks operator said a sport-based streaming service under its ESPN banner would be available next year, while a film and TV offering, featuring original Disney content, would go live in 2019, coinciding with the end of its distribution agreement with Netflix.

Disney has some big releases scheduled for 2019, including Toy Story 4; the sequel to Frozen; and a live action version of The Lion King. All of these will be exclusively on Disney’s subscription-video-on-demand service.

Netflix shares fell 3.0% to US$172.95 in after-hours trading, while Disney shares fell 3.8% to US$102.92 on the back of weak fiscal third quarter results.

Disney also announced it would pay US$1.58bn to acquire an additional 42% holding in streaming technology company BAMTech, taking its stake up to 75$. BAMTech was created by Major League Baseball.

“The media landscape is increasingly defined by direct relationships between content creators and consumers, and our control of BAMTech’s full array of innovative technology will give us the power to forge those connections, along with the flexibility to quickly adapt to shifts in the market,” said Robert Iger, chairman and chief executive officer of The Walt Disney Company. 

“This acquisition and the launch of our direct-to-consumer services mark an entirely new growth strategy for the company, one that takes advantage of the incredible opportunity that changing technology provides us to leverage the strength of our great brands,” Iger gushed.

Disney’s third quarter earnings were underwhelming, with net income down 9% from a year earlier at US$2.37bn.

Adjusted earnings per share topped expectations by three cents at US$1.58, but revenue of US$14.2bn was a shade below the US$14.5bn the market had been expecting.

Interestingly, the media networks unit, which includes ESPN as well as the ABC network, saw operating income slide 22% from a year earlier to US$1.84bn, making it the fifth quarter in succession that the division’s operating income had fallen, reflecting lower advertising revenues; a subscription-based service is less reliant on advertising revenues, which may explain why Disney is severing its relationship with Netflix and going it alone.

Story by ProactiveInvestors