Disney delivered a major surprise to the market with well-above-expected financial results for the media sector. This growth was driven primarily by its streaming operation, Disney+. This scenario reinforces how a strategy of centralizing efforts on digital platforms can generate growth. The company signals an increasingly solid transition to the future of entertainment.
Sports streaming is Disney’s big bet
Walt Disney DIS.N posted better-than-expected quarterly results and raised its annual profit forecast on Wednesday, led by gains in the streaming business, which is expected to be the centerpiece of its growth strategy in coming years. In the last 24 hours, the media and entertainment company entered two major deals with the National Football League and WWE as it readies its $29.99-per-month ESPN streaming service that will give viewers access to sporting events, including the NFL and National Basketball Association.
The entertainment giant is betting that combining its Disney+, Hulu and ESPN services into a single streaming app will fuel growth of its profitable streaming service and help offset declines in its traditional television business. The company estimates its direct-to-consumer business will generate operating income of $1.3 billion in the fiscal year that ends in September, up 30% from its original guidance. “We’ll bundle that trio — Disney+, Hulu and ESPN,” Disney CEO Bob Iger told investors, calling it “an opportunity to lower churn (and) increase engagement.” That bundle will also be offered at $29.99 as a one-year promotion.
Disney said its pivotal deal with the NFL, in which it will acquire the NFL Network and other media assets from the league in exchange for a 10% equity stake in Disney’s ESPN sports network, will allow the company to offer a more compelling experience for football fans. The deal needs regulatory approval. The company also negotiated exclusive rights to major wrestling events, including WrestleMania and Royal Rumble in the streaming service, set to launch August 21.
ESPN platform enters a new era, focusing on live sports
Disney has just adopted a bold strategy with the announcement of ESPN’s new era: attracting audiences with live sporting events, consolidating the pay channel’s loyal subscriber base. Negotiations are already underway with the NFL and WWE, which have boosted the value of the digital offering, allowing the company to compete with other streaming services. Live sports are seen as a differentiator in this market competition.
“Expect the earlier-than-planned launch of Disney’s ‘ESPN’ streaming service to give Disney’s direct-to-consumer (DTC) business a notable lift in revenue. Disney is racing full force to sign sports rights with the company’s NFL and WWE announcements. This is yet another signal that the latest battle in the streaming war is all about live sports programming” said Forrester VP Mike Proulx.
While traditional TV disappoints, experiences are still valued
Nonetheless, Disney’s stock fell 3 percent in early trading, reflecting investor concern about the performance of the traditional television business, which saw a 28 percent decline in operating income. “Investors are aware of the decline in linear TV but it was worse than expected,” said Ben Barringer, head of technology research at Quilter Cheviot.
The performance of traditional TV raises a warning: with the sharp drop in revenue, it’s clear how difficult it is to adapt the linear model to contemporary consumer habits. That’s why Disney is investing in digital loyalty, which could be essential to offset losses in a changing industry.
Disney balances digital innovation with physical experiences
Disney is a good example of a company adapting quickly and strategically during this period of change and transformation in how content is consumed. The company has done a good job of forging alliances with major sports leagues and reshaping its digital offering, and it’s even believed to be poised to lead the next phase of streaming.
GCN.com/Reuters.