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ESPN For Cord-Cutters Gets A Price As Disney Reports Flat Media Revenue

In a mixed Q1 earnings call, CEO Bob Iger stuck to an overall theme: Direct-to-consumer offerings are Disney’s future.

ESPN For Cord-Cutters Gets A Price As Disney Reports Flat Media Revenue
[Photo: Flickr user Josh Hallett]

In the Walt Disney Company’s first earnings report since it announced the acquisition of most of 21st Century Fox’s film and TV businesses, the company beat Wall Street expectations—for the most part. Disney said it earned an adjusted $1.89 a share, compared to the $1.61 that Wall Street expected for the quarter ending. However, revenue was $15.35 billion, just short of the $15.5 billion analysts predicted.

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The strong quarter was the result of an uptick in revenue across Disney’s global theme parks, as well as recently enacted federal tax changes, which led to a $1.6 billion financial boost for the company.

On the earnings call, Disney chairman and CEO Bob Iger revealed more details about ESPN Plus, the company’s sports streaming app, which will launch in the spring at a cost of $4.99 a month. Iger said the app will be an overhaul of the current ESPN app and that “the experience is being completely redone.” He said it would be more personalized to users’ tastes, habits, and geography, and would offer more content and coverage of Major League Baseball, soccer the National Hockey League, Grand Slam tennis events, rugby, and cricket.

The app will also have original content and provide access to ESPN’s library of programming, including the documentary series 30 for 30.  

With traditional cable TV subscriptions in decline, Iger boasted that ESPN Plus will let sports fans access the network’s content any way they want. “If anything points to the future that ESPN looks like, it will be this app and the experience it provides,” he said.

Which is good news, seeing as Disney’s media networks reported flat revenue and a 12% decline in operating income due to weaker ad sales at ESPN.

A Galaxy Too Close To Home

On the studio side, revenue dropped by 1% and operating income decreased by 2% due to slower home video sales of Cars 3, compared to the previous year’s Finding Dory. But Disney said it nonetheless had a “solid” quarter due to Thor: Ragnorak, Coco, and Star Wars: The Last Jedi, even though the latter film fell short of box office expectations. Iger is also enthused about the next Marvel movie, Black Panther, which has been getting strong word of mouth and praise from critics.

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Iger’s overriding theme was that the future is all about Disney’s direct-to-consumer products, and creating content on the film and TV side to feed those channels. Beyond existing IP, Disney announced on Tuesday that Game of Thrones creators David Benioff and D.B. Weiss will write and produce a new series of Star Wars films. Those will presumably wind up on the entertainment app that Disney is launching in late 2019, which will feature content from Marvel, Lucasfilm, Pixar, and the Disney TV and film studio.

BAMTech, in which Disney acquired a majority stake late last year, is building the “guts” of Disney’s apps, Iger said, but editorial oversight is being handled by Disney. The apps will also be an opportunity for Disney to exploit all of the Fox content Disney acquires once its $52.4 billion purchase of Fox makes its way through the federal regulatory process.

“Our ultimate intention is to create and to ultimately grow a global, direct-to-consumer business that will take advantage of the production output that the combined companies will have,” Iger said.

When asked whether Disney would spend as much as its main rival, Netflix, on its OTT products (Netflix is spending $7-$8 billion on content this year), Iger said that because of the strength of Disney’s brands, it did not need to focus as much on volume.

“When you go to market with Star Wars movies, Pixar movies, Marvel movies, branded TV shows, including those that are very well-known IP,” Iger said, “that will give us the ability to probably spend less than if we’d gone to market with a service without these brands.”

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About the author

Nicole LaPorte is an LA-based writer for Fast Company who writes about where technology and entertainment intersect. She previously was a columnist for The New York Times and a staff writer for Newsweek/The Daily Beast and Variety.

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