M+E Connections

Disney continues to see encouraging results from its ESPN Plus direct-to-consumer (DTC) streaming initiative and expects that to continue as the company prepares for the launch of its Disney Plus DTC offering later this year, according to company CEO Robert Iger.

ESPN Plus now has 2 million paid subscriptions, “double the number from just five months ago,” he said Feb. 5 on an earnings call for Disney’s first quarter (ended Dec. 29).

“DTC remains our number one priority,” he said, adding: “We remain focused on the programming as well as the technology to drive the success of our DTC business, and we’re thrilled with the continued growth of ESPN Plus.”

As another example of the strong demand so far, he said the first “UFC Fight Night” broadcast under Disney’s new “five-year rights deal led nearly 600,000 fans to sign up for the service.” What’s more, he added: “The fact that 49 million Americans – 15 percent of the entire population — watched ESPN content on linear TV that day and millions more [were] engaged on other platforms including ESPN Plus speaks to the enduring power of live sports, the strength of the ESPN brand and the value of the UFC rights we acquired.”

Disney expects “the expansion of combat sports content on the streaming service to drive continued growth in the months ahead,” he told analysts.

Another positive sign was that ESPN Plus, which operates on the BAMTech platform Disney now owns, has proven to be “reliably stable during peak live streaming consumption and easily handled the volume of more than half a million people signing up in a single 24-hour period,” he said.

That same technology “will power Disney Plus when it launches later this year,” he reminded analysts, adding: “Presented with an overabundance of choice, consumers look to brands they know to sort through the options and find what they actually want. The DTC space is no different in that regard and we’re confident that our iconic brands and franchises will allow us to effectively break through the competitive clutter and connect with consumers. We’ll also use our brands to help subscribers quickly navigate the content on Disney Plus, creating an efficient interface that enhances their experience and their affinity for the service.”

In addition to Disney and Pixar animated movies and other Disney-branded content, Marvel and “Star Wars,” Disney also plans on “leveraging” 21st Century Fox’s National Geographic network to provide more unique content for Disney Plus once Disney’s purchase of Fox assets is finalized, Iger told analysts.

In general, the “addition of content and management talent from 21st Century Fox will further enhance our DTC efforts and provide opportunities for growth across the company,” according to Iger, adding: “Having already designed much of the integration process, we are prepared to start effectively combining our businesses as soon as we obtain regulatory approval from the last few remaining markets.”

Disney expects Fox’s FX network will develop and produce content for the Hulu streaming service that Disney has a 30% stake in now and will have a 60% stake in once the Fox deal is finalized, Iger noted.

But FX is “probably not” going to develop and produce content for the Disney Plus platform because “it’s not the kind of programming you typically see in a family environment,” he told analysts.

Disney will demonstrate the Disney Plus platform and “showcase some of the original content we’re creating for it” at the company’s Investor Day April 11, he said. Disney will also “take that opportunity to provide detailed insight into our overall DTC business,” he pointed out.

During the Q&A, he explained that what the company’s “trying to do here is invest in our future — and the investments that we’re making in both the technology side and in creating incremental content are all designed so that, long-term, this business will become an important part of Disney’s bottom line and long-term strategy.”

He also told analysts Disney has no plans anytime soon to either: (a) enter the sports gambling business now that the U.S. Supreme Court has given the OK for each state to decide whether it wants legal sports betting, or (b) get back into the video game publishing business again.

On sports betting, he said: “I don’t see The Walt Disney Company, certainly in the near term, getting involved in the business of gambling, in effect, by facilitating gambling in any way.” But he added: “I do think that there’s plenty of room — and ESPN has done some of this already and they may do more — to provide information in coverage of sports… that would be relevant to and of particular interest to gambling and not be shy about it.”

On the video game front, he said: “We’re obviously mindful of the size of that business. But, over the years, as you know, we’ve tried our hand in self-publishing. We’ve bought companies. We’ve sold companies. We’ve bought developers. We’ve closed developers. And we found over the years that we haven’t been particularly good at the self-publishing side, but we’ve been great at the licensing side, which obviously doesn’t require that much allocation of capital. And since we’re allocating capital in other directions, even though we certainly have the ability to allocate more capital, we’ve just decided that the best place for us to be in that space is licensing and not publishing.”

Disney reported total Q1 revenue was about flat with Q1 last year, at about $15 billion, but profit tumbled 37% to $2.8 billion ($1.86 per diluted share) from $4.4 billion ($2.91 per diluted share).

Media Networks revenue grew 7% to $5.9 billion. But Studio Entertainment revenue dropped 27% to $1.8 billion because of the difficult comparison Disney had to the strong movie slate a year ago, when it had “Star Wars: The Last Jedi” and “Thor: Ragnarok.” In comparison, Disney’s major Q1 releases this time were “Mary Poppins Returns” and the box office bomb “The Nutcracker and the Four Realms.”