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Disney-Branded Streaming Service to be ‘Substantially’ Cheaper than Netflix, Iger Says

The Disney-branded direct-to-consumer streaming service planned for 2019 will be priced “substantially below” what Netflix charges for its current streaming service, according to Disney CEO Robert Iger.

Disney has “given a lot of thought to pricing” for both the Disney-branded service to launch in late 2019 and new ESPN streaming service that it will launch this spring, he said Nov. 10 on an earnings call for the company’s fiscal fourth quarter (ended Sept. 30). The company hasn’t “officially determined” pricing for the Disney-branded service or the ESPN service — to be called ESPN Plus, he noted on the call. But he said: “We will be forthcoming with you on this sometime after the first of the year.”

The decision to price the Disney-branded service lower than Netflix was, “in part, reflective of the fact that it will have substantially less volume” than what Netflix offers, at least initially, he said, noting again that the Disney service will include Disney/Pixar animation, Marvel and “Star Wars” content.

It’s also Disney’s “goal to attract as many [subscribers] as possible starting out,” he said, adding: “We think we’ve got some interesting opportunities there given the affinity to Disney, whether it’s with our Disney-branded credit cardholders, our annual pass holders, people who are members of D23, people who own Vacation Club units at Disney, people who visit our parks frequently.

There’s a gigantic potential Disney customer base out there that we’re going to seek to attract with pricing that is commensurate with or that balances the quality of the brands and franchises that are in there, but also takes into account the volume. And that will give us an opportunity to grow in volume and to have the pricing over time reflect the added volume as this product ages.”

ESPN Plus will be accessible to consumers via a new and “fully-redesigned” EPSN app that he said will enable users to access sports scores and highlights, stream its channels on an authenticated basis and subscribe for additional sports coverage, including “thousands” of live sporting events. Disney will demonstrate the new app in early 2018 and “detail pricing and other elements to provide some perspective on the potential this represents to our company,” he said.

In addition to the latest Disney, Pixar, Marvel and “Star Wars” feature films that will be offered on the Disney-branded streaming service in the first pay window, the company’s studio will also produce “four or five future films a year exclusively for this service,” he said.

The company also plans to “produce a number of original series for the new service, and we’re already developing” a “Star Wars” live action series, a series based on the Pixar franchise “Monsters, Inc.,” a “High School Musical” series and a series for Marvel TV, “along with a rich array of other content” including new movies from the Disney Channel creative team. as well as a variety of short-form films and features from across Disney, he said. The service will also offer “thousands of hours” of Disney movie and TV library product, he told analysts.

Also on the content front, Iger disclosed that Disney “just closed a deal” with “Star Wars: The Last Jedi” director Rian Johnson to develop a new “Star Wars” film trilogy.

Disney’s, meanwhile, “pleased with trends that we’re seeing” in the over-the-top (OTT) TV streaming service area, “where we’ve seen a nice pick-up” in subscribers, he said. What the company is also “really heartened by is the fact that some of them are spending a fair amount” on their OTT services and have “stepped up their marketing efforts aggressively,” he told analysts. It was also “interesting” that these “entrants in the OTT business are spending” money on live sports, he said, adding: “They obviously believe that the sports fan is potentially a primary customer of new OTT services, and what we’ve seen as well is millennials seem to be particularly interested in these services. I think it’s a combination of pricing and the user-friendly nature of these services.”
Disney reported fourth-quarter revenue slipped 3% from a year earlier, to $12.8 billion, while profit dipped 1% to $1.7 billion.

The company was hurt by various factors in the quarter, including contractual rate increases for sports programming, lower ad revenue and higher losses from its equity investments in BAMTech and Hulu, it said.

Disney last year paid $1 billion for a 33% stake in video streaming company BAMTech and recently invested an additional $1.6 billion to increase that stake to 75% and acquire control of BAMTech, which is providing the technology for Disney’s new streaming services.

Disney, Fox and Comcast’s NBCUniversal each own a 30% stake in Hulu, while Time Warner’s Turner Broadcasting System (TBS) has a 10% stake in that on-demand streaming company.

Regarding Disney’s coming streaming services, Pivotal Research Group analyst Brian Wieser’s “initial take is that the ESPN app will have limited appeal without top-tier content, and that operating costs plus marketing expenses may neutralize profits,” he said in a research note. But he predicted that the Disney-branded app will “gain a significant number of subscribers,” although revenue “may have more cannibalistic effects,” while production and operating costs “may limit the degree to which profitability is meaningful to the overall company in the foreseeable future.”

But he added: “Of greater concern, and key to our negative view on Disney’s stock, is that erosion of basic subs will continue for ESPN, impacting both affiliate fees and advertising revenue, and driving margin erosion, while the looming presence of Facebook, Google and Amazon as bidders for sports rights presents risks that what we think are going to be declining margins for the cable networks segment will decline further in the very long-run.”