Disney takes aim at streaming rivals with heavy weaponry

Pricing of upcoming Disney+ streaming service shows the company is making a major move into an already crowded market, analysts say

This image provided by Disney shows a product image of Disney Plus on a monitor. Walt Disney shares are rocketing to an all-time high in early trading, Friday, April 12, 2019,  after the company moved aggressively into the streaming arena. The Disney Plus video steaming is being released in tandem with a blockbuster lineup of films coming out this year, including Aladdin, Toy Story 4, The Lion King, Frozen 2 and Star Wars: Episode IX. (Disney via AP)
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Walt Disney surged to an all-time high on enthusiasm for its coming Disney+ streaming service as it moves to take on the competition.

The platform, which debuts November 12, is priced at $7 a month in an aggressive challenge to rival entertainment giant Netflix and others in the crowded field, Reuters said.

Investors cheered the strategy, sending Disney shares up as much as 11 per cent - the biggest intraday gain since May 2009 - to a record $129.85 in New York trading Friday. Netflix shares fell as much as 5 per cent to $349.36 shortly after the open in New York Friday, sending its market as low as $152.5 billion.

Analysts said Disney's announcement shows it is giving no quarter as it battles Netflix, Amazon Prime Video, Hulu and an upcoming service from Apple, according to AFP.

"The biggest surprise was the price - $6.99 per month, which was much lower than many people were expecting," said Alan Wolk, co-founder of the TVREV consulting firm.

"It's also ad-free, which was unexpected, as the conventional wisdom was that they would go to a hybrid Hulu-style model, with both ad-supported and ad-free options."

While some investors see the new streaming service as a nemesis to Netflix, KeyBanc Capital Market’s Andy Hargreaves sees Disney+ as a bigger problem for Apple, AT&THBO, CBS’ Showtime and other services that don’t have Netflix’s established range of content.

“If you listen to Disney, they’re saying we’re not necessarily going after Netflix,” said Mr Hargreaves. “We are trying to carve out our own niche based on the quality of IP we have, not necessarily the breadth.”

At JP Morgan, an alysts Alexia Quadrani said: “Disney surprised on the upside at its investor meeting, providing more financial disclosure and revealing a more content rich streaming service than previously expected.

“With a low price point of $6.99 per month and robust content with four quadrant appeal, we would expect a steep initial ramp in subscribers.”

“Overall we walked away from the meeting very encouraged about the outlook and its likely success," saud Ms Quadran.

Disney unveiled the service on a sound stage used to make the original Mary Poppins, delivering an Apple-style presentation of the online product. The platform will be several dollars less than Netflix's most popular plan, which runs at $11, and will weigh heavily on Disney's finances. Disney+ isn't expected to break even for about five years.

Beyond the price and technology, the service will live or die based on its content - and that’s where Disney made a big statement. Disney+ will featurean arsenal of child-friendly programming, including 13 classic animated movies, 21 Pixar features, original series, and material from its Marvel and Star Wars franchises.

“We are confident this is a product people are going to sign up in droves to have,” chief executiveBob Iger said.

Disney+ will begin rolling out to the US, western Europe and Asia in the first fiscal quarter, near the end of the calendar year. It will then arrive in eastern Europe and Latin America a year later. Disney plans to spend $1 billion on streaming programming in the next year, and it doesn’t expect to make a profit until fiscal 2024, when the platform could have 60 million to 90 million customers. Two-thirds of those subscribers will be overseas, the company predicted.

Disney+ also will include The Simpsons, acquired in Disney's purchase of 21st Century Fox entertainment assets last month. Borrowing the show's cheeky tone, Disney presented a clip of the Simpsons family with a statue of Darth Vader on one side and Iger on a pedestal nearby. A signed photo of Rupert Murdoch - the billionaire mogul behind Fox - was in the trash. There was a "Welcome Synergy" sign above.

“I salute our new corporate overlord,” Bart Simpson told his family, while holding Disney mouse ears. “Put on those ears.”

Disney's newest theatrical films will head to the new streaming platform after their runs in movie theaters and home video. That includes Captain Marvel and the upcoming Avengers: EndgameAladdin and Toy Story 4.

The company previously had deals with Netflix and others to offer its content, but Disney gave up those partnerships - and the revenue - to make its own service more desirable.

For Mr Iger, Disney+ is a bit of a swan song. The company’s longtime steward reiterated on Thursday that he expects to step down as CEO at the end of 2021, when his contract expires.

During the presentation to investors, Disney gave a peek at how the service will work. It features five tiles devoted to key Disney brands, including Pixar, Marvel, Star Wars and National Geographic. The 4K-resolution content will be available on internet-connected TVs, smartphones, tablets and other devices.

The look and feel of Disney+ isn’t radically different from Netflix’s design. But Disney is betting that its devoted fan base will find reason to add another streaming service.

At $6.99, Disney+ also is beating a comic-book rival: AT&T’s DC Comics introduced a service at $7.99 a month that includes material from characters like Wonder Woman, Batman and Superman.

The new product isn’t Disney’s only streaming platform. It acquired majority control of the Hulu TV service with the $71bn Fox deal, and it’s now considering whether to expand that product overseas.

A Hulu price cut, which lowered its entry-level, ad-supported version by 25 per cent to $6 a month, helped bring a surge of customers, Disney said. Hulu expects to double its ad revenue over the next few years.

“Hulu is doing just great,” said Kevin Mayer, chairman of Disney’s direct-to-consumer and international operations. “We are really pleased.”

Disney also has the ESPN+ online sports service, which will get a Latin American launch, the company said. As it expands, that product will have losses of $650 million in the next two years.

“You can figure that we will bundle ESPN+ and Disney+ fairly soon,’’ Mr Iger said.

With Disney+, the company learned lessons from its UK launch of DisneyLife, which featured online access to albums, games and publications.

“The consumer was mostly interested in movies and TV,” Mr Iger said. “No other types of media.”

“Disney’s aggressive $6.99 price for its Disney+ streaming service and a 60 million to 90 million global subscriber target by fiscal 2024 speaks to the power of its brands and their market appeal. Yet investors must brace for earnings pressure on significant content investments and rising operating expenses.”

Netflix, meanwhile, may face more pressure to justify its higher price. But the company has managed to raise rates in markets all over the world during the past few years, without much consequence.

Its latest US price hike, announced in January, increased the cost of Netflix’s most popular plan by 10 per cent to $11. Given Netflix’s grip on households, especially in the US, analysts expect customers to take the increase in stride.

SunTrust Robinson analyst Matthew Thornton said he does not "view Disney+ as a strong alternative” to Netflix.

“Net-net no big surprises in terms of Disney+ pricing, timing, availability, and content.”

For Netflix, Mr Thornton continues to expect Disney+ to “present manageable incremental competition” on new subscriber adds and feasible impact on churn.

“Finally, we continue to expect Disney+ to accelerate cord-cutting, which should be positive offset for Netflix and the OTT ecosystem,” he said

Disney+ features family content, while Netflix offers a much broader range of content with majority of the most-searched content spanning adult drama, comedy, horror and suspense, anime, documentaries and international, Mr Thornoton pointed out.