The Hollywood Reporter – August 14, 2019

The Business

THE HOLLYWOOD REPORTER 44 AUGUST 14, 2019

Analysis

Illustration by Rafa Alvarez

D

isney’s upcoming stream-

ing service will “be treated

as the most important

product that the company has

launched” during his 14-year

tenure, crowed CEO Bob Iger dur-

ing an Aug. 6 call with Wall Street

analysts. It’s a bold proclamation,

and it comes with major repercus-

sions. It’s also the closest Iger has

come to publicly declaring an all-

out war with Netflix.

That same day, Iger said

Disney+, set to launch Nov. 12,

will be bundled with ESPN+ and

Hulu, which Disney controls, for

a mere $12.99, about what most

Netflix subscribers pay for that

singular service. Such a low price

not only sets the stage for a battle

with streamers but also with

cable and satellite TV bundlers

— a potentially awkward posi-

tion given that Disney’s Media

Networks division, made up of

ABC, Disney Channel, ESPN and

others, is a primary contributor

to its bottom line. “The rollout

will affect pay TV negotiations.

How could it not?” says analyst

Jimmy Schaeffler of the Carmel

Bob Iger’s Streaming Weapon

May Be a Double-Edged Sword

A newly unveiled $12.99 bundle that includes Disney+, Hulu and ESPN+ takes direct aim

at Netflix’s standard price plan — but it also could hasten cord-cutting and ‘hurt’ Disney

as it negotiates new carriage fees for its (very profitable) linear channels

Group. “Nothing will be negoti-

ated without the cloud of Disney+

hanging over meeting rooms.”

Media Networks is Disney’s

largest business, but it is forecast

to grow just 14 percent over the

next five years as cord-cutting

takes its toll, courtesy of stream-

ers like the one Disney will

launch, says Michael Morris of

Guggenheim Securities. In the

same five years, Disney’s smallest

segment, Direct-to-Consumer

and International, is expected to

surge 140 percent to $29.3 billion

in 2024, nearly matching the

services will be key to investor

enthusiasm,” says Morris, despite

them being a loss-leader, for now.

McCarthy said to expect the DTC

segment to lose $900 million in

the current quarter alone, while

research firm eMarketer projects

Disney+ to go from a less than

1 percent market share in the U.S.

at the end of 2019 to more than

9 percent by 2024. “It definitely

strikes me as a risk,” adds Steven

Birenberg of Northlake Capital

Management. “The new bundle

plus Hulu Live TV can encourage

cord-cutting and hurt Disney

while it negotiates.”

Also on the horizon are ser-

vices coming from NBCUniversal,

WarnerMedia and Apple, and

CBS acting CEO Joe Ianniello

said Aug. 8 that CBS All Access

will launch kids programming

this year, further pressuring

Netflix while also encroaching on

Disney’s domain. “It has nothing

to do with Disney, at all; it has to

do with the data and research,”

Ianniello told investors. “This

is a natural progression for us.”

Ianniello said CBS All Access and

Showtime OTT will have 25 mil-

lion subscribers by 2022, up from

about 8 million now. Disney

projects as many as 30 million

Disney+ subs by 2024, which

“will mostly come from Netflix’s

60 million U.S. subs,” says analyst

Laura Martin of Needham. “We

project Disney will win, and

Netflix lose, the U.S. SVOD battle.”

Perhaps. But at what cost?

DIGITAL | PAUL BOND

PAU L BON D is West Coast business

editor at The Hollywood Reporter.

$32.7 billion expected from Media

Networks. “The perverse outcome

is that these competing services

and bundles will encourage

more cord-cutting,” says Michael

Pachter of Wedbush. “Fewer cable

subscribers means lower retrans-

mission rates.”

At $5.99 a month with ads, Hulu

has attracted 28 million subs,

Disney CFO Christine McCarthy

said Aug. 6, while ESPN+ at $4.99

monthly has 2.4 million. For an

extra $2.01, consumers should

flock to the upcoming bundle.

“Subscriber growth at these

Guggenheim SecuritiesSources: eMarketer,

Streaming Market Share

Over the next five years, Disney+ could

significantly alter the U.S. OTT landscape

now led by Netflix

34.2%

Netflix Netflix25.3%

22.7%

Amazon

29.6%

Amazon

14%

Hulu

19.6%

Other

15.7%

Other

0.05%

Disney+

6%

HBO Now

15.4%

Hulu

9.3%

Disney

2019

Source: Guggenheim Securities; data is for fiscal years

With Disney+ ahead, revenue generated by the Direct-

to-Consumer/International segment will surge 140 percent

in five years, dwarfing growth at other segments

Disney’s Forecast

Parks, Experiences

and Consumer

Products

Cable

Networks

Studio

Entertainment

Direct-to-

Consumer and

International

Broadcasting

0 10 20 30 $40B

2019 2024

$26B

$18B

$14B

$12B

$11B

$34B

$20B

$17B

$29B

$13B

2024

7.8%

HBO

Now