Walt Disney (NYSE: DIS) Chairman and CEO Bob Iger shared some important information with analysts during the company's second-quarter earnings call. Here are the major takeaways for long-term shareholders.
Skinny bundles are slowing cable losses
Q3 2018 marked the fourth consecutive quarter in which Disney has seen improvement in the rate of its net subscriber declines. Disney's decision to make many of its most popular channels available in so-called skinny bundles, which offer fewer channels for a reduced price, is helping in this regard.
Iger also noted that more than 50% of U.S. homes subscribe to streaming services, with the average customer subscribing to three different streaming video-on-demand products. Additionally, about 80% of these homes also have traditional paid-TV service of some type. These figures suggest that many consumers may view Disney's new streaming services as complementary to their current cable service, rather than as a replacement. This could mean that Disney's future streaming revenue may be largely additive to its cable and broadcast revenue, rather than a source of cannibalization as many bears believe.
ESPN+ is off to a fast start
Disney's new ESPN+ streaming service is enjoying strong early results. Although Iger declined to give specific subscriber figures for the service, he reiterated later in the call that ESPN+ was exceeding the company's "relatively modest expectations."
Moreover, Iger noted that ESPN+ should only become more compelling to sports fans as Disney expands its content. In the coming year, ESPN+ will offer more than 200 college football games and live events from Major League Baseball, the National Hockey League, and Major League Soccer. With international soccer, boxing, and mixed martial arts further rounding out its programming, ESPN+ does appear to offer fans a compelling value proposition at only $4.99 per month. In turn, the streaming service should continue to enjoy solid subscriber growth in the coming years.
Fox will fuel Disney's international expansion
Disney is making an aggressive move to acquire Twenty-First Century Fox's (NASDAQ: FOXA) (NASDAQ: FOX) entertainment properties for $71.3 billion. Yet management believes the assets it's receiving are well worth their cost. Disney expects the deal to strengthen its international operations, particularly in fast-growing emerging markets such as India. It also intends to use Fox's properties to solidify its streaming offerings.
Disney's streaming strategy: Choice versus aggregation
Rather than a Netflix-like all-in-one service, Disney's plan is to offer three distinct streaming services: ESPN+, a yet-to-be-launched Disney-branded service, and Hulu, in which Disney will own a 60% stake after it completes the Fox deal. Disney believes this will allow it to offer each service at a lower price point than Netflix, and cater to a wider overall audience. For those who do wish to subscribe to all three of its streaming services, Disney can offer the bundle at a reduced price in order to further increase its value proposition to consumers.
Additionally, Disney intends to use Fox's popular brands such as FX and National Geographic to add even more attractive content to its streaming packages, which are already slated to offer movies and shows from its own iconic brands including Disney, Pixar, Marvel, and Star Wars. As such, Disney is poised to become a powerful force in the streaming arena in the years ahead.
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