Later this year, the entertainment giant will launch Disney+ -- a third online video service alongside ESPN+ and Hulu -- loaded with movies and TV shows from Marvel, Pixar and “Star Wars.” The Fox film studio and the FX and National Geographic networks also will play key roles as Disney wraps up the $71 billion takeover of 21st Century Fox Inc.’s entertainment portfolio.
It’s all part of Chief Executive Officer Bob Iger’s master plan to corral many beloved brands, from “Avatar” to “Zootopia,” and deliver them to the millions of viewers who now stream TV via monthly subscriptions. But challenging Netflix Inc., the online pioneer with almost 140 million subscribers worldwide, will cost big money, especially with Disney digesting Fox.
“Disney is one of the long-term winners in media,” said Chris Marangi, co-chief investment officer at Gabelli & Co., a big owner of Fox shares. “But everyone knows this year is going to be a down year.”
The investments in streaming services will crimp earnings in several ways, reflecting the cost of creating new programming, marketing and delivering the video. Disney will also lose revenue as shows and movies are pulled from Netflix and other outlets.
Disney reports financial results next week, and management has prepped investors for a difficult fiscal first quarter, which ended in December. Chief Financial Officer Christine McCarthy said in November that profit in the film division could be as much as $600 million lower, due to tough comparisons with the prior year. TV profit will be squeezed by $100 million because of the ESPN+ streaming service, including higher sports rights fees.
Hulu is a big contributor to that red ink. The service, which will become the online home to more adult-oriented Fox content, just lowered the price of its entry-level subscription by 25 percent to $6 a month. While that may attract customers, it also means Hulu will be a bigger drain on earnings when Disney assumes majority ownership through the Fox deal.
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