Disney announced it was ending its relationship with Netflix movies, potentially renegotiating in the future while announcing a new service
Netflix movies will no longer include signature Disney characters. The second largest US media company today announced that it will stop supplying content to Netflix and offer its own streaming service, largely featuring movies and sports programming.
Disney announced as it reported earnings Tuesday earnings, saying the firm planned to launch a direct to consumer content delivery service in 2019, with its ESPN unit offering streaming sports programming in early 2018.
Disney Chairman and CEO Bob Igor called the move “a big strategic shift for the company, ” he told CNBC immediately following the announcement that Netflix movies will no longer include Disney. “This will give us quite a competitive advantage, ” he said, noting the firm wanted “control of their own destiny.”
In announcing the development, they also announced it is buying majority ownership in BAMTech, a leading video streaming application used by major sports networks such as Major League Baseball and the National Hockey League.
In after-hours trading, Disney was down nearly 3% in the wake of the announcement.
With the cable business model increasingly finding difficulty, the rise in “cord cutting, ” where traditional cable TV viewers end their cable package subscription to view content on the Internet, is changing the nature of the business model. AT&T is endemic of the cultural movement towards shrinking cable TV viewing habits.
When specifically asked if Disney was changing its “bundle” model that provides exclusivity to cable distributors, Igor was cagey. He said “for now” the cable distribution model won’ t change and the content producer would not “go over the top” and offer the entire ESPN / Disney content package to viewers.
“We’ ve seen general erosion in multi-channel ecosystems, ” he said, refusing to break down revenue based on subscriber or distribution type. The revenue Disney received from Netflix was reported to be lower than the company would like. Nonetheless, Igor said his firm has “a good relationship with Netflix, ” nothing that the Marvel branded programming they run on Netflix will not be impacted. Disney may renegotiate a content licensing agreement with Netflix in the future, according to Igor.
Netflix movies and other original content will see spending of $22 billion, an amount that Igor said was significantly higher than what Disney plans to spend.
“The Disney brand has never been stronger, ” Igor said, noting that the new Disney application will roll out in various global markets differently.
Today’s move “gives us the optionality if the business model isn’ t serving the needs of the company and shareholders” in the future, Igor told CNBC. “This is not an announcement in (the direction of an over the top service) right now.”
