Disney’s 2019 Q1 earnings report on Tuesday included a line never before seen in Disney earnings reports: direct-to-consumer and international. In other words, Disney is now breaking out its over-the-top streaming business. (Disney beat expectations on revenue and profit and shares popped 2%.)
Disney’s DTC business, for now, includes its majority ownership in BAM Tech (the spun-out video business of Major League Baseball Advanced Media), its majority ownership of Hulu (Disney previously owned 33% but got another 33% in its 21st Century Fox acquisition), and its ESPN over-the-top product ESPN+. It will also include its highly anticipated Disney over-the-top product, Disney+.
This division brought in $918 million in revenue in the first quarter and lost $136 million due to investments in ESPN+ and Disney+, partially offset by “increases in subscription and advertising revenue” at Hulu.
In total, the Direct-to-Consumer and International component contributed just 6% of Disney’s overall revenue in the quarter.
But it’s now the most important business at all of Disney. CEO Bob Iger said so in plain terms on the earnings call, and reiterated it in the email he sends to all 200,000 Disney employees after every earnings report: Disney’s direct-to-consumer business, he wrote, “remains our number one priority.”
Make no mistake: Iger is talking about Disney+, and indeed, where the business conversation every Disney earnings report used to center on ESPN and how many cable subscribers it had lost, the focus has now shifted to whatever scant details Iger shares each quarter about what Disney+ will look like.
So, what do we actually know about Disney+ so far?
ESPN+ has amassed two million paying subscribers nine months after launching, Iger revealed. That product has been an obvious testing grounds for Disney+ and is powered on the back end by BAM Tech, “which has proved to be reliably stable during peak live streaming consumption,” Iger said on the call. Disney+ will run on the same tech.
Disney+ will have a range of exclusive original content at launch from every creative unit at Disney: Disney Animation, Pixar, Marvel, and Lucasfilm. That means Star Wars and Marvel content. And Iger added, “We look forward to leveraging National Geographic to provide even more unique content for Disney+.”
The launch of Disney+ will mean Netflix losing a vast library of Disney content all at once, and it will mean future Disney movies no longer end up on Netflix, beginning this year with “Captain Marvel,” the company revealed.
This has turned the Disney+ launch into a battle with Netflix, and indeed, Netflix is already building up its defenses in children’s and animated content so as not to lose subscribers like families when Disney+ launches.
Thus the biggest question has become: can Disney+ pull subscribers from Netflix, or if not, can it get people to pay for yet another OTT platform?
Most analysts say yes. And I have written that Disney does not need Netflix. The best reason to be bullish is Disney’s unmatched library of intellectual property: franchises from Marvel, Star Wars, and Pixar.
But are we approaching a saturation point in OTT platforms, where consumers feel their platter is full?
Not yet, says CFRA Research analyst Tuna Amobi.
“We think that the secular trends continue to favor the emergence of all of these over-the-top platforms, ESPN+ and Disney+ included,” Amobi says. “Remember, we’re not just talking about the U.S. but also the international markets, where you’ve got very, very low penetration... That’s why, when you think about Disney+ and the potential to take this around the world, I do believe that the pie is big enough for Netflix, and Disney streaming, and all of these emergent players to continue to grow and pressure the traditional ecosystem of subscribers.”
Daniel Roberts is a senior writer at Yahoo Finance and closely covers streaming tech. Follow him on Twitter at @readDanwrite.