By Lisa Richwine and Aishwarya Venugopal
Walt Disney Co will stop providing new movies to Netflix Inc starting in 2019 and launch its own streaming service as the world’s biggest entertainment company tries to capture digital viewers who are ditching traditional television.
Disney’s defection, announced alongside its quarterly results on Tuesday, is a calculated gamble that the company can generate more profit in the long run from its own subscription rather than renting out its movies to services like Netflix.
In turn, Netflix and rivals such as Amazon.com Inc and Time Warner Inc’s HBO are pouring billions of dollars into buying and producing their own content and streaming it straight to consumers.
Investors worried that Disney’s entry into a crowded “over-the-top” subscription market and the cost of technology to support its own streaming services would weigh on earnings.
Disney stock fell 4 per cent in after-hours trade. Shares of Netflix fell 2.89 per cent.
The new Disney-branded streaming service will follow a similar ESPN plan that will be available starting in 2018, the company said, although the ESPN app will not have the main live sports content available on ESPN’s cable offering.
The streaming services will give Disney “much greater control over our own destiny in a rapidly changing market,” Chief Executive Bob Iger told analysts on a conference call, describing the moves as an “entirely new growth strategy” for the company.
Disney has some experience with the direct-to-consumer model in Britain and could make more money in the long run from its own service, but the move could be “financially less advantageous” in the near term, said Pivotal Research Group analyst Brian Wieser.
Streaming tech deal
Disney said its new services would be based on technology provided by video-streaming firm BAMTech, and announced it would pay $1.58 billion to buy an additional 42 per cent stake in that company, which it took a minority stake in last year.
The BAMTech deal will modestly dent earnings per share for two years, the company said.
Disney is one of the most recognized names on Netflix, but it is not the company first to pull away. Starz Entertainment in 2011 said it would pull its movies and shows from Netflix due to a dispute over pricing of the roughly 1,000 films in the Starz catalog on Netflix at the time.
Netflix played down the effect of Disney’s announcement, and said it would continue to do business with Disney globally, including its relationship with Disney’s Marvel TV.
“U.S. Netflix members will have access to Disney films on the service through the end of 2019, including all new films that are shown theatrically through the end of 2018,” the company said in a statement.
The announcement came as Disney reported a near 9 per cent fall in quarterly profit, pulled down by higher programming costs and declining subscribers at its flagship sports channel ESPN.
The company’s revenue fell marginally to $14.24 billion in the third quarter ended July 1 from $14.28 billion a year earlier.
Net income attributable to the company fell to $2.37 billion, or $1.51 per share, from $2.6 billion, or $1.59 per share.