Disney Details Streaming Initiative -- WSJ

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 10, 2017).

Walt Disney Co. Chief Executive Robert Iger disclosed new details on coming streaming services and the Star Wars film franchise as the company reported declines in three of its four core businesses for its latest quarter.

Mr. Iger wouldn't comment on recent reports that Disney pursued an acquisition of 21st Century Fox Inc.'s entertainment assets and declined to take questions on the topic during a conference call with analysts on Thursday.

Disney is developing new television series based on some of its biggest franchises -- "Star Wars," "Monster Inc.," "High School Musical" and Marvel -- that will be carried on a Netflix-style streaming service set to launch in the second half of 2019, Mr. Iger told analysts.

Those are the first specific programming announcements Disney has made about the service. By placing such premium content there, rather than on its cable channels or ABC network, the company is signaling that it views the direct-to-consumer offering as a high priority.

Mr. Iger also provided some information on pricing for the service, saying it will be "substantially below" that of Netflix Inc. because it will start with "substantially less volume." Netflix currently charges between $8 and $12 a month. As Disney adds more content to its service after 2019, the CEO said, the price could increase.

Mr. Iger also revealed that an ESPN digital offering scheduled for next year will debut in the spring and be called ESPN Plus. It will be part of a redesigned ESPN app that includes sports scores and highlights along with content from the cable network available only to people with a pay-TV subscription. The digital offering will include sports such as hockey and tennis that don't air on the cable network.

In addition, Mr. Iger for the first time provided details on the company's plans to produce Star Wars movies beyond a current trilogy set to end in 2019. Rian Johnson, the writer-director of this December's "The Last Jedi," is developing "a brand new Star Wars trilogy" for Disney, the CEO said.

Generating confidence in the future is critical for Disney as it is coming off a comparatively weak fiscal year for its movie and consumer-products units and more declines in its television business.

ESPN continued to lose subscribers in its fiscal fourth quarter ended Sept. 30 while programming costs for sports rights rose and advertising revenue declined. But "affiliate revenue" from cable and satellite-TV operators increased. Viewership at millennial-focused cable network Freeform was also down.

The company's cable revenue for the quarter was flat at $3.95 billion and operating income declined 1% to $1.24 billion from the same quarter a year ago.

Broadcast revenue for the ABC network and studio plunged 11% to $1.5 billion and operating income was off 15% to $229 million due to lower ratings and ad revenue. In the year-earlier period, the network benefited from campaign advertising and aired the Emmy Awards. Sales of programs to other outlets also fell in the latest quarter.

Profits from the A&E cable networks also dropped and losses at streaming service Hulu grew. Disney owns minority stakes in both.

Total television revenue dropped 3% in the quarter to $5.47 billion and operating income fell 12% to $1.475 billion.

Disney's movie studio was hurt by the underperformance of "Cars 3" and a write-off of nearly $98 million on the animated movie "Gigantic," which was previously scheduled for 2020 but was cancelled. The just-ended fiscal year's movie slate, while strong, didn't quite stack up to the preceding year, in which Disney had mega-hits including "Star Wars: The Force Awakens," "Zootopia" and "Finding Dory."

Movie studio revenue dropped 21% last quarter to $1.4 billion and operating income declined 43% to $218 million. The drop was also caused in part by a profitable sale of classic "Star Wars" movies to television outlets last year.

The only Disney business to grow in the fourth quarter was parks and resorts. Performance improved at Disneyland in California, Disneyland Paris and Shanghai Disney Resort, the company said, as well at its cruise ships and vacation club.

But Walt Disney World in Orlando, Fla., was hurt by a number of factors, including Hurricane Irma. The theme park closed for two days and three cruise ship itineraries were cancelled, costing Disney a total of $100 million and shaving 14% off parks' operating income, said Chief Financial Officer Christine McCarthy.

Disney's total revenue fell 3% in the quarter to $12.78 billion and net income declined 1% to $1.75 billion.

Ms. McCarthy said results for the current fiscal year, which began Oct. 1, will be "suppressed somewhat," by $130 million in costs related to the consolidation of and investment in streaming technology company BamTech, as well as $100 million of increased investment in Hulu. Disney will also increase capital investment by about $1 billion, she said, in large part due to the cost of new Star Wars lands at Disneyland and Walt Disney World.

Disney shares rose 2% to $102.68 before financial results were released late Thursday, and they were up slightly in after-hours trading.

Write to Ben Fritz at ben.fritz@wsj.com

(END) Dow Jones Newswires

November 10, 2017 02:47 ET (07:47 GMT)