Disney embraces the stream as ratings sag

Associated Press

NEW YORK

As more and more people get their favorite TV shows and movies online, Disney is also learning to embrace the stream.

The Walt Disney Co. once resisted offering channels like ESPN directly over the internet, preferring old-fashioned cable subscriptions. Its investors are fretting over ratings as more people cut the cord and cancel cable or satellite service. NFL game viewership is also down, and the contentious election drew viewers away from Disney networks such as ABC to cable news networks.

Disney stock was down 9.6 percent for the year, at Thursday’s closing. And a weaker-than-expected earnings report, which showed a drop in ESPN revenue, drove shares down another 2.6 percent in extended trading.

But Disney, which owns Marvel, Star Wars and its own Pixar and Disney Studios, is forging ahead with new streaming deals involving Netflix, Hulu and others.

“Disney is the one media company that can succeed in taking its brands directly to consumers,” said Nomura analyst Anthony DiClemente.

He expects Disney could one day offer ESPN as a stand-alone service, for example, similar to HBO’s $15-a-month “HBO Now.”

Burbank, Calif.-based Disney hasn’t gone that far yet. But last quarter it took a $1 billion stake in BAMTech, which provides streaming for Major League Baseball. The company said it plans to use that technology to offer an ESPN streaming service that offers live game streaming and programming not offered on regular ESPN.

Meanwhile, in the U.K. there is Disney Life, launched a year ago, a $15 monthly service that offers Disney movies, TV shows, e-books and other children’s content online.

“You can use that as a template for what they might do in the U.S.,” Nomura’s DiClemente said.

So far in the U.S., Disney has been working with streaming services Hulu and Netflix to bring its properties to the stream. Its deal with Netflix, inked in 2012, finally kicked in this September, and gives Netflix the right to stream Disney movies like “Zootopia” before others. Netflix is also the exclusive home for Marvel TV shows such as “Jessica Jones” and “Luke Cage.”

And last week, Hulu said there would be a Disney channel on its upcoming live online TV service. Disney owns part of Hulu, which is a joint venture between Disney, 21st Century Fox and Comcast’s NBCUniversal and Time Warner.

In short, Disney is adapting to the stream, and those efforts will pay off eventually, DiClemente said.

Investors hope that day comes soon. Disney reported Thursday that fiscal fourth-quarter net income rose 10 percent to $1.77 billion, while sales fell 3 percent to $13.14 billion.

But adjusted earnings amounted to $1.10 per share, which fell short of Wall Street estimates. Analysts surveyed by FactSet were expecting $1.16 per share on revenue of $13.5 billion.