Disney is making some significant changes in its media strategy in the near future, but it could be some time before those new initiatives result in positive revenue impacts.
Jefferies analyst John Janedis says Disney’s plans to launch direct-to-consumer streaming products for ESPN and Disney branded content will have a twofold effect on revenue. In pulling back its content from platforms like Netflix, Disney could lose around $1.1 billion in licensing revenue, or $450 million in EBIT, Janedis said, adding that Disney will also incur an incremental $300 million to 400 million in annual operating/programming costs related to the launch of its DTC offerings.
Janedis said that assuming both the ESPN and Disney streaming services attract about 4 million subscribers each by 2022, Disney should see annual revenue of close to $800 million and EBIT of just over $400 million.
In considering those factors plus the impact from future MVPD negotiations and ad pressure for ESPN’s nonlive sports programming, Jefferies is lowering its fourth-quarter EPS for Disney to $1.11 (down from $1.27).
Disney plans to launch its ESPN streaming service in 2018 and the Disney service in 2019. The ESPN service will feature 10,000 live regional, national and international games and events per year from leagues including Major League Baseball, National Hockey League, Major League Soccer, Grand Slam tennis and college sports. The Disney service will offer original series and movies, as well as live action and animated movies from Disney and Pixar, beginning with the 2019 theatrical slate.
Disney has yet to offer concrete launch dates or pricing information for either service. But industry analysts like MoffettNathanson’s Michael Nathanson predict Disney could price its branded service around $5 per month in order to drive wider adoption.