The Mouse House announced plans for a direct-to-consumer streaming subscription in August 2017, and while the company hasn't specified a launch date, a name, or how much it will cost, some details have emerged on how the new service will fit into Disney's business.
On an August 2017 earnings call, the Netflix-style service was described by Disney CEO Bob Iger as "an extremely important, very, very significant strategic shift for us" as the company tries to recuperate a shrinking television business. At the time, Disney also said it wouldn't renew a licensing contract with Netflix for some of its content. That contract expires in 2019, and Disney is expected to launch its offering in the back half of the year.
Instead of Netflix, Disney's forthcoming service will serve as the exclusive home for some of its highly valuable properties, including the Star Wars franchise and the Marvel library. And on Disney's last earnings call in May, CEO Bob Iger teased some more detail on the company's approach to digital content, saying that Fox's entertainment assets would boost Disney's forthcoming 'direct-to-consumer' (DTC) streaming service.
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"On the Disney front, we think there's some great opportunities for Nat Geo and some of the other Fox properties to be part of the Disney family direct-to-consumer proposition," said Iger on the call, responding to an analyst question on how Disney's bid for 21st Century Fox (FOXA) - Get Report influenced its digital strategy. "But that largely is going to be anchored by Disney, Marvel, Pixar and Star Wars, so not dependent at all on the assets that we're buying from Fox." Disney's purchase of Fox is expected to close in early 2019, pending approval by international regulators.
The Disney DTC service, dubbed 'Disneyflix' in Hollywood circles, is spearheaded by Ricky Strauss, a Disney marketing executive that was placed in charge of the project in June. According to a New York Times report, the service's initial slate of content will be anchored by Disney's film library and old Disney TV shows, with at least nine new movies in the works. The films have budgets ranging from $20 million to $60 million each, the report said.
Disney reports its second-quarter earnings after the close on Tuesday, and analysts are likely on the lookout for updates on ESPN+, Disney's first streaming offering that launched in April 2019, as a window into the company's plans for the new service launching in 2019. This is the first full quarter since the streaming service went live in April, and Disney executives may deliver some detail on how the company's first foray into streaming is doing so far, and what they've learned as they race towards a 2019 launch date for 'Disneyflix'.
By that point, competition in the streaming space will have only grown: Apple (AAPL) - Get Report is in the midst of building its own streaming bundle, and other deep-pocketed rivals like Alphabet's (GOOGL) - Get Report YouTube are experimenting with video subscriptions. In the meantime, analysts are looking at Disney's valuable content library as its best shot at luring viewers to its service.
"We believe the company's broader shift to DTC/OTT is correctly the top point of investor focus at the moment on a fundamental level," wrote BMO Capital Markets analyst Dan Salmon in a July report. "We think it's too early to own the stock for the high level shift in business model to DTC and due to deal uncertainties, however we continue to believe in the long-term attraction of Disney's leading portfolio of intellectual property and strategic shifts."