Disney Misses Quarterly Numbers, But Promises Big Bang From Fox
Disney Chairman and CEO Bob Iger.

Disney's (DIS)  earnings disappointed, but Chairman and CEO Bob Iger promised investors a streaming service to rival Netflix (NFLX) .

"Brands matter more than ever," Iger told investors. Pairing Disney's studios such as Marvel, Lucas Films and Pixar with brands the company is acquiring from Fox  (FOXA)  such as Searchlight, FX and National Geographic will give the upcoming streaming service firepower to challenge Netflix, he said.

The Magic Kingdom earned $1.87 per share in its fiscal third quarter, falling short of Wall Street's expectations of $1.95 per share, on a non-GAAP basis. Revenue rose 7% to $15.2 billion but missed consensus estimates of $15.4 billion.

Shares dropped 0.6% to $115.90 in pre-market trading.

While Disney works to complete its $71.3 billion purchase of Fox's (FOXA) film, television and international pay-TV holdings, the company left the door open for a new bid for U.K. satellite TV operator Sky. Comcast (CMCSA) currently has a deal to purchase Sky for £14.75 per share, or £26 billion ($34 billion).

"Disney's fiscal Q3 revenue growth was very solid, but the big question that remains is whether they will continue the pursuit of Sky and top Comcast's high bid," Moody's analyst Neil Begley said in a brief written comment after the call. 

Disney has approval from shareholders and the Department of Justice to close its $71.3 billion purchase of Fox, but needs clearance from international regulators. Iger would not provide an update on timing, but reiterated guidance in a June filing with the Securities and Exchange Commission that it would close the deal within six to twelve months.

The company has already made progress shopping Fox's regional sports networks, which Disney agreed to sell as a concession to regulators, Iger said. Parties have expressed interest, though Disney would not sell the assets until it closes the Fox deal.

Disney has a three-pronged streaming strategy, which includes ESPN+ sports package, a family-oriented brand under the Disney name and Hulu. "They will basically be diesgined to attract different tastes," Iger said.  

Asked about competing with Netflix's $8 billion in content spending, Iger said Disney's streaming service will be in the "quality game" rather than the "volume game." The new streaming service will be able to offer titles from Star Wars to Pixar and the Marvel franchises. 

The catch is that much of the intellectual property is committed to other services. Iger pointed to Disney's 2019 films, which include Captain Marvel, Dumbo, The Aventers, Alladin, Toy Story 4, Lion King, Frozen 2, Star Wars and others that are not encumbered by existing distribution deals. "That's a pretty strong slate," Iger said.

The ESPN+ streaming service, which was launched earlier this year, is doing "better than expected," Iger said, without providing numbers. "I can only tell you that we're telling the truth," he said, while acknowledging that Disney started with "relatively modest expectations."

Disney will hold off on buybacks until its leverage ratios return to single A rating levels, CFO Christine McCarthy said, which would not likely happen until the end of fiscal 2021 or 2022. When Disney meets its leverage goals will likely come down to whether it acquires the 61% of Sky that Fox does not currently own. 

The Sky stake is "a fluid situation and an open matter," Iger said, declining to comment further. 

While Disney is planning to build a streaming service that can seriously challenge Netflix and to expand distribution outside the U.S., whether it buys Sky will have a huge impact on capital management and shareholders for the coming years. Shareholders may prefer a little less global ambition and a quicker resumption of buybacks. 

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