Disney Prepared for $150m Licensing Revenue Hit to Launch Disney+


Disney chairman and CEO Bob Iger said his company’s direct-to-consumer streaming offerings are its “number one priority”, acknowledging that there will be some short-term pain for the business as it builds its new Disney+ service. One revenue stream that Disney will lose is the $150 million in cash generated from content licensing fees, which are currently paid by platforms like Netflix to Disney in exchange for its content. Those content deals will become untenable as all Disney content is withdrawn so it’s only available on Disney+. Upcoming blockbuster ‘Captain Marvel’ will be the first property to be reserved exclusively for Disney+.

Iger gave fresh details about Disney’s various streaming offerings during an earnings call, after the company released financial results which showed its direct-to-consumer offerings had made a $136 million loss in the most recent quarter. The results included Disney’s direct-to-consumer business income as its own specific line item for the first time, a decision which Iger said will give transparency into how its streaming services are performing.

“In terms of making the decisions about where content goes near term or today versus traditional platforms, first of all, since we are betting on this direct to consumer business long term, we obviously have to fuel it with intellectual property,” he said. “And so we’re creating intellectual property incremental to the properties or the product that we’re making for our traditional platforms just so that we can launch this product. And then in some cases, we’re moving product over that perhaps could have been on traditional platforms. And again, we’re doing that because it’s a capital allocation in the direction of long-term growth for the company.”

Iger also addressed worries that his new service will be entering an already crowded marketplace of streaming platforms. “We think there’s huge potential for Hulu to grow as well as for the other services to grow and plenty of room for other entrants in the marketplace,” he said. “But we aim to take advantage of, on the Disney and the ESPN side, our brands and that expertise.”

When Disney+ arrives, in the US it will sit alongside ESPN+ and Hulu as the third pillar of Disney’s streaming strategy. For the other two pillars, the current outlook is somewhat mixed. ESPN+, which launched last year, has had an impressive start, picking up over two million subscribers already. It’s also giving Disney the ability to run addressable ad campaigns, which helped ESPN ad revenue grow five percent year-on-year.

Hulu meanwhile continues to run at a loss, and Iger said he wouldn’t comment on how long it might take for the service to become profitable. But once Disney closes its takeover of Fox, it will own a majority stake in Hulu. Iger said that once that happens, it will look at more opportunities to drive profitability, which might include international expansion, as well as integration with Disney+ and ESPN+. The goal is ultimately to have all three running off the same tech platform, with users able to access each with the same account name and password.

 


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