Investors' biggest question about the future of Walt Disney Co. continues to be whether and how it will turn around its struggling television business.
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Chief Executive Robert Iger's answer, new streaming services aimed directly at consumers, will likely once again be a primary focus of its earnings report Thursday.
His decision to launch an entertainment streaming service in 2019 will mark a revolution in the way the media company makes and spends money and in its relationship with consumers. Instead of licensing all the content it produces to other distributors, be they movie theaters, cable systems, or online hubs like Netflix, Disney will start selling the content it produces directly to consumers, with no intermediaries.
The move is necessary, insiders say, because Disney's TV business has turned from growth engine to albatross, due in part to the rise of streaming giants like Netflix Inc. and Amazon.com Inc. Profits in Disney's television unit, its largest, are down 11% this year. Television generated $6.1 billion of profit in the first nine months of Disney's fiscal year, 48% of its total. In 2014, it was 56%. In 2012, it was 66%.
"The fact that the TV ecosystem is facing challenges has made us shift our focus pretty dramatically," said Kevin Mayer, Disney's chief strategy officer. "We see these streaming efforts as a way to capture new revenues and profits."
Despite impressive growth in film, theme parks and consumer products, Disney stock has fallen 17% in the past two years, largely over anxiety about the future of TV.
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Mr. Iger laid out plans for the streaming service in August to try to allay Wall Street's concerns. But his announcement raised new worries about whether the company can effectively execute. Its shares have fallen 8% since then.
To power its streaming ambitions, Disney bought majority control of the technology company BamTech for $2.58 billion.
Disney is also preparing to launch an online ESPN offering next year that will stream more than 10,000 sporting events, including early matches in Grand Slam tennis tournaments and professional baseball, hockey and soccer games. Because those aren't shown on TV, however, the service is expected to be complementary to cable subscriptions.
The entertainment offering, however, could prove an attractive alternative for families that don't want to pay big cable bills.
The centerpiece will be all of the movies Disney's studio produces, including sequels to "Star Wars," "Avengers," and "Toy Story," available six to nine months after they debut in theaters.
"It's a content investment that ultimately we believe will provide more revenue for the company than it did in the previous model," said Mr. Mayer.
Currently, Disney sells so-called pay-TV rights for its movies to Netflix for a hefty price -- more than $300 million a year, according to people with knowledge of the arrangement.
Including planned original movies and TV series, Disney will invest a total of $1.8 billion on its streaming service between 2019 and 2021, research firm MoffettNathanson estimated. That is on top of what it paid for BamTech.
Disney has yet to set a price for its service and is considering whether to give cable subscribers a discount, said people with knowledge of the matter.
Write to Ben Fritz at email@example.com
(END) Dow Jones Newswires
November 04, 2017 07:14 ET (11:14 GMT)