In a nod to the “if you can’t beat them, join them” idiom, the Walt Disney Company has decided to join the cord cutting revolution.
In a stunning move that shocked the media entertainment industry Disney announced plans to introduce not one but two streaming services, one built around sports programming and the other focused on movies and television programming. The former will be unveiled early next year and will include live baseball, hockey, tennis and college sports. The service will stream an estimated 10,000 regional and national events in its first year alone. Subscribers to the new service as well as cable and satellite subscribers will have access to the sports service through an enhanced version of ESPN’s current app.
The second of Disney’s new streaming services, expected to debut in 2019, will put the company in direct conflict with its current distributor, Netflix and its cable providers. Netflix is guaranteed to lose some if not all access to new Disney and Pixar films which it currently streams online. Cable providers pay hefty fees to distribute Disney’s family of ESPN and other channels. Disney acknowledged that the company hasn’t spoken with cable providers, but said it was confident it would be able to maintain “favorable” deals with them.
Robert A. Iger, Disney’s chairman and chief executive officer, didn’t mince words in describing the company’s new business model. “I would characterize this as an extremely important, very, very significant strategic shift for us,” he told analysts on a conference call to discuss quarterly earnings. Clearly, the move was related to those earnings results which saw a slight decline in revenue and a 9 percent drop in net income, the continuation of a two-year decline that Disney is trying to stem.
Disney’s new streaming services will be powered by BAMTech, a technology company that handles direct-to-consumer video for MLB and HBO, among others. Last year Disney paid Major League Baseball $1 billion for a 33 percent stake in BAMTech with an option to acquire a majority stake at a later date. That date came sooner than expected. Simultaneously with the announcement of the new streaming services, Disney acknowledged it had recently spent $1.58 billion for an additional 42 percent of the company.
What all this means to consumers is still a bit hazy, but people who loath paying for programming they don’t watch will rejoice. Those who favor sports won’t have to pay for movie channels they ignore. Others who prefer watching movies will soon have exclusive access to new Disney films, including a sequel to “Frozen,” a live-action version of “The Lion King” and “Toy Story 4” without paying for sports programming. Presumably, subscribers to the movie service will also have access to Disney’s vast library of content including movies and television programming from Disney Channel, Disney Junior and Disney XD. Another benefit to consumers is a promise by Iger that the new service will not have advertising.
Netflix, which specializes in providing streaming media and video-on-demand online, is definitely the loser in this new environment. The company currently has rights to new Disney-branded films, rights Disney will take back. However, Iger suggested that some Disney films – Marvel and Star Wars, for example - may continue to be licensed through Netflix.
Disney isn’t the first network to introduce a direct-to-consumer subscription streaming service. CBS did it in 2014. However, Disney is a media goliath and now that the company has joined the fold, expect more networks to follow.
Iger wouldn’t say how much the new service would cost although he said the goal was a price low enough to encourage adoption without cannibalizing traditional cable and satellite subscriptions. That balancing act may be difficult to pull off. Traditional subscriptions to ESPN have been on a downward spiral for the past two years and fell an additional 3.5 percent in the most recent quarter.
However Disney’s new day unfolds, chalk up its recent announcement as a big win for consumers.
Jordan Kobritz is a former attorney, CPA, Minor League Baseball team owner and current investor in MiLB teams. He is a Professor in and Chair of the Sport Management Department at SUNY Cortland and maintains the blog: http://sportsbeyondthelines.com. The opinions contained in this column are the author’s. Jordan can be reached at firstname.lastname@example.org.