Disney shares drop as investors weigh risks of new streaming plans

WALT Disney Co’s plan to launch its own digital movie and sports services means the world’s largest entertainment company must learn how to attract streaming video subscribers and keep them hooked in a highly competitive market.

In a major strategic shift, Disney announced it would launch a sports-themed ESPN streaming service next year followed by a similar offering with Disney and Pixar movies and television shows in 2019.

While many analysts lauded the effort’s long-term goals, uncertainty about Disney’s ability to make up for lost revenue from Netflix Inc and other sources worried investors. Disney shares closed down for per cent on Wednesday.

Most believe Disney needed to respond to the migration of viewers from pay-TV packages to digital options sold a la carte, a shift that has hurt the company’s cash cow, ESPN.

But Disney will encounter new hurdles selling directly to consumers. The company has relatively little experience with selling subscriptions, although it does operate a digital service in Britain called DisneyLife.

It will also have to invest in technology. As part of the plan announced on Tuesday, Disney said it would spend US$1.58 billion to acquire majority ownership of BAMTech, the company that streams professional US baseball and will provide the tech powering the new streaming services.

Disney will stop providing new movies to Netflix starting in 2019. At the time the deal was announced in 2012, analysts estimated Disney would reap roughly US$350 million a year from Netflix.

If Disney charged US$5 per month, it would need about 5.8 million subscribers to match the income from Netflix, or 2.9 million subscribers at US$10 per month.

“The Disney product is taking a very successful and settled part of the business model (pay TV economics for films) and putting it at risk in the hopes of building an asset with more long-term value,” Cowen and Co analysts wrote in a research