Wednesday, August 9, 2017

Disney Earnings: Profit Drops 9%, Will Drop Netflix

Walt Disney Co reported a near 9 percent fall in quarterly profit, pulled down by higher programming costs and declining subscribers at its flagship sports channel ESPN.

Reuters reports the company also said it would pay $1.58 billion to buy an additional 42 percent stake in video-streaming firm BAMTech. Last year, Disney said it was taking a 33 percent stake in BAMTech for $1 billion.

Disney also said on Tuesday that it would end its distribution agreement with Netflix Inc for subscription streaming of new releases, beginning with the 2019 calendar year theatrical slate.

The company's revenue fell marginally to $14.24 billion in the third quarter ended July 1 from $14.28 billion a year earlier.

Net income attributable to the company fell to $2.37 billion, or $1.51 per share, from $2.6 billion, or $1.59 per share.

Here's what Disney reported as operating income for each segment, compared with analysts' expectations, according to StreetAccount consensus estimates:

  • Media and networks: $1.84 billion vs. $1.99 billion expected
  • Parks and resorts: $1.17 billion vs. $1.09 billion expected
  • Studio: $639 million vs. $636.6 million expected
  • Consumer and interactive: $362 million vs. $394.6 million expected

The company announced during its latest earnings report on Tuesday it intends to pull all its movies from Netflix, according to CNBC

Instead, Disney plans to launch a branded direct-to-consumer streaming service in 2019 starting in the U.S. and expanding globally.

CEO Bob Iger told CNBC's Julia Boorstin Disney had a "good relationship" with Netflix, but decided to exercise an option to move its content off the platform. Movies to be removed include Disney as well as Pixar's titles. The new platform will be the home for all Disney movies going forward beginning with the 2019 theatrical slate, which includes "Toy Story 4," "Frozen 2," and the upcoming live-action "The Lion King." It will also be making a "significant investment" in exclusive movies and television series for the new platform.

The company will also launch its own ESPN video streaming service in early 2018. The platform, which will feature about 10,000 sporting events each year, will have content from the MLB, NHL, MLS, collegiate sports and tennis' Grand Slam events.

To power the services, Disney is buying a majority ownership of BAM Tech for $1.58 billion. Disney bought a 33 percent stake in the company, which was spun off from digital media company MLB Advanced Media, in August 2016.

"This represents a big strategic shift for the company," Iger said to CNBC. "We felt that having control of a platform we've been very impressed with after buying 33 percent of it a year ago would give us control of our destiny."

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