DISNEY DOUBLES DOWN WITH PLANS FOR FOX AND STREAMING SERVICES
▶ Netflix-style offering for next year built around films and TV with increased budgets to support FX cable channel
Walt Disney chief executive Robert Iger last week gave an upbeat view of his plans for new video streaming services and the takeover of 21st Century Fox, even as earnings missed estimates because of film write-offs.
ESPN+, the $5-a-month online sports service launched in April, is attracting more subscribers than forecast, Mr Iger told investors. He also said Disney has plans for Fox assets, including offering ecologically themed tours tied to that company’s National Geographic business.
“We’ve always believed we have the brands and content to be extremely competitive and to thrive alongside Netflix, Amazon and anyone else in the market,” Mr Iger said.
Disney is in the process of acquiring Fox’s entertainment assets in a $71 billion deal – seeking movie and TV properties that it can turn into mega-hits like its Marvel, Star Wars and Pixar films.
Fox, whose executive chairman is media tycoon Rupert Murdoch, is in a separate bidding war with Comcast for European broadcaster Sky, which would be absorbed by Disney following the mega-merger.
Fox last week made it easier to win that fight, switching the conditions of shareholder acceptance for its bid. That means Fox can use its existing 39 per cent holding in the British company to get to an approval threshold of as little as 50 per cent of Sky shareholders, from 75 per cent previously.
But first, Fox would have to top Comcast’s offer for Sky, which is currently the highest at £14.75 a share. On Monday, Sky’s shares closed at £15.30 per share in London.
Disney has launched the ESPN streaming service and plans a second, Netflix-style offering for late 2019 that will be built around films and TV. Mr Iger also vowed to increase budgets for Fox’s FX cable channel, the Oscar-winning Fox Searchlight film operation and for National Geographic. He said they will all have big roles in the company’s streaming services.
Mr Iger said the loss of cable subscribers has eased since ESPN began appearing in new low-cost TV packages. His upbeat view of the future of the business overcame investor concerns about softness in the TV and film divisions, according to Vasily Karasyov, an analyst with Cannonball Research in New York.
“Once they said ESPN subs continued to improve, the stock popped back up,” Mr Karasyov said. “It tells you what people care about.”
A new Avengers film and
Incredibles 2, both summer releases, were among the industry’s biggest hits yet. However, Disney took a $100 million write-off on two unidentified animated projects that it abandoned, resulting in third-quarter earnings that missed analysts’ estimates.
Disney leads the US box office this year – with 35 per cent of the market – and stands to expand that edge with the Fox purchase. But it has also had misfires. In June, the company closed its Disneytoon Studios, its low-budget animation division, leading to job losses.
Profit at the film division rose to $708m on the strength of the California company’s big summer releases. Avengers:
Infinity War has taken in more than $2 billion worldwide to become the fourth highest-grossing film in history, while Incredibles 2 topped $1bn in ticket sales globally and ranks as the biggest US animated feature.
Mr Iger acknowledged that Disney will not have all of its library available for new streaming services. Some Star Wars content, for example, is contracted to Netflix and AT&T’s Turner division.
“If they’re looking for Star Wars movies that launched in 2019 or original Star Wars series you will find that here,” he said.
“And as rights become available, or as we’re able to negotiate for rights to bring back you’ll see them on the service and so on and so on.”
Profit at Disney’s biggest division – TV operations that include ABC, ESPN and the Disney Channel – fell 1 per cent to $1.82bn, the result of costs associated with the new sports streaming service.
While ESPN recorded higher profit, revenue was hurt by continued subscriber losses. Sales and earnings at ABC rose as the network boosted sales of programming to others.
Operating income at the parks division rose 15 per cent to $1.34bn. The unit, the largest theme park operator in the world, has been a star performer in recent years, driven by new attractions and higher ticket prices. Domestic and international resorts, along with the cruises, contributed the improved results.
Profit from the consumer products unit, a laggard recently, fell to $324m. The business, which makes money from Disney merchandise, has suffered from lower licensing and store sales.
Excluding some items, earnings rose to $1.87 a share in the quarter, which ended June 30. That missed analysts’ estimates of $1.94. Revenue grew 7 per cent to $15.2bn, compared with the $15.4bn projected by analysts.
Fox, meanwhile, is laying out plans for a new life anchored by popular TV programming and the National Football League.
After earnings and sales topped analysts’ estimates last week, Fox co-chairman Lachlan Murdoch switched the focus to “new Fox”, which will be spun off in conjunction with Disney’s takeover.
He said management has made substantial headway towards crafting the new business, which will feature the No 1 cable news channel and a sports network with 40 per cent of all NFL viewership.
Fox’s revenue increased
18 per cent to $7.94bn last quarter, topping the $7.55bn estimated by analysts. Earnings for cable network programming grew 12 per cent to $1.61bn in the fourth quarter. Filmed entertainment posted a profit of $289m, compared with a loss of $22m a year earlier.
“The new Fox will boast the schedule of America’s most engaging sports news and entertainment programming,” said Lachlan Murdoch.
It remains to be seen whether the Disney tie-up, should it complete, will prove him right.
Once they said ESPN subs continued to improve, the stock popped back up. It tells you what people care about VASILY KARASYOV Cannonball Research analyst