Investors are very interested in Walt Disney's (NYSE: DIS) plans for its upcoming streaming service -- so much so that Disney stock initially traded about 3% lower following the company's fourth-quarter earnings release last week but then reversed when Disney executives offered up new details about the service during its earnings call. Indeed, the stock ended up rising about 2% after investors heard more information about Disney's direct-to-consumer product plans.
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So, what exactly did Disney say? Here's a look at the company's latest details on its streaming plans.
Disney is well positioned
Before delving into the more nitty-gritty new details on the service, Disney CEO Bob Iger put the importance of Disney's plans to evolve amid a new media landscape front and center in the company's fiscal fourth-quarter earnings press release.
No other entertainment company is better equipped to navigate the ever-evolving media landscape, thanks to our unparalleled collection of brands and franchises and our ability to leverage [intellectual property (IP)] across our entire company. We look forward to launching our first direct-to-consumer streaming service in the new year, and we will continue to invest for the future and take the smart risks required to deliver shareholder value.
Disney has said it has plans for two streaming services -- an ESPN-branded multi-sport video service that will launch in 2018 and a Disney-branded streaming service that will launch "in the latter part of 2019."
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The initial offering
Disney's ESPN-branded sports service, of course, will launch first. The service will feature a fully redesigned app that will include additional sports coverage beyond existing network content that users can get access to on an authenticated basis. It will also feature sports scores and highlights. Making it clear that the content is incremental, Disney now says it will call the service ESPN Plus.
Iger said the company's Disney-branded service will initially stream "the latest Disney, Pixar, Marvel and Star Wars feature films." In addition, Iger said it will produce around four or five feature films a year exclusively for the service.
Based on the recent popularity of Disney's films, exclusive features could prove to be an extremely compelling value proposition to many consumers. Consider the essentially unblemished track record of Marvel films, with the last 12 in a row crossing $500 million at the global box office. Or there's the average global box office of $665 million for Disney's animated movies since its acquisition of Pixar.
To catch rival Netflix (NASDAQ: NFLX), Disney will need to ramp up its content schedule for the service quickly. Netflix has similarly ramped up its content spending with each subsequent year. The company currently has $17 billion worth of content commitments over the next several years and plans to spend $7 to $8 billion on content on a profit-and-loss basis in 2018. Netflix's budgets for content spending in 2016 and 2017 were $5 billion and $6 billion, respectively.
Disney will launch original TV shows
Beyond making available its growing library of feature films and some exclusive movies on its direct-to-consumer service, Disney will roll out original TV shows and shorts on the service, Iger explained in the fourth-quarter earnings call (via a Reuters transcript).
We're also planning 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 our popular Pixar Monsters franchise, a High School Musical series and a series for Marvel television, along with a rich array of other content, including new movies from our Disney Channel creative team as well as a variety of short-form films and features from across our company.
While Iger wasn't clear on whether some of these original series will be available in the initial rollout, he said the service will ultimately offer "thousands of hours of Disney film and TV library product."
Disney's content schedule is aggressive
Iger assured investors that Disney is going all-in on the service, opting to launch it with a bang.
I don't want to say we're going to walk before we run, because we're going to, as I've said earlier, we're going to launch this thing pretty aggressively. But I think what you'll see is a ramp up over time of production spending. But we'll start with a product that we believe is representative of the great brands and franchises that we have, between Marvel and Disney and Pixar and Star Wars, and then grow from there.
The service will be priced "substantially below" Netflix
Iger said Disney plans to price its direct-to-consumer product "substantially below where Netflix is." While he admitted this will partly reflect the company's smaller content library, it also represents an aggressive effort to attract as many subscribers as possible.
But investors shouldn't expect the service to stay at whatever low price it launches at. Disney wants to follow Netflix's model of raising its prices over the years as its content library increases.
"[T]hat will give us an opportunity to grow in volume and to have the pricing over time, reflect the added volume as this product ages," Iger said.
Disney's update on its streaming services confirms its commitment to bringing to market compelling direct-to-consumer offerings.
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