Commentary

Disney's Biggest Concern For New Streaming Service Isn't Netflix

Netflix and other premium subscription video-on-demand services remain major competitors of traditional TV-media companies, such as Walt Disney, 21st Century Fox, and others.

But the greater concern in the near term is what happens to overall movie-TV studio home entertainment revenues.

That’s a question MoffettNathanson Research posed in considering Disney’s recently announced efforts to start a streaming movie app, as well as as ESPN streaming app.

For example, industry-wide annual home-entertainment revenues -- leaving out any existing streaming revenue -- has declined to $12.05 billion in 2016 from $16.4 billion in 2011.

Disney’s annual home-entertainment business has gradually fallen from $2.4 billion in 2011 to $1.9 billion in 2016. Overall, MoffettNathanson says physical DVDs and Blu-ray disc represents about half those revenues. All this is accelerating at a double-digit rate.

The big issue is how much cannibalization is coming to Disney's and Fox's home-entertainment business when they move into more streaming video services.

Financial models for film studios’ movie franchises depend heavily on those after-market physical movie sales. New streaming services would need to make up for home-entertainment revenues. (This would not factor into lost business from traditional TV and or licensing deals.)

MoffettNathanson estimates that even after three years of operation, and getting to around 3.9 million subscribers for a new Disney-brand OTT (over the top) service, Disney could pull in, at most, $232.3 million. This estimates the service is priced at about a modest $5 a month.  

At a slower subscriber total -- 1.9 million after three years --  this would mean an annual revenue take of $116.1 million.

The ESPN streaming service would also impact its traditional TV business — from steepening subscriber losses and to its TV advertising revenues. A new Disney movie service would surely forego big license revenue fees from Netflix, as well as other after-market TV platforms.

Perhaps there are other financial wrinkles and projections that have yet to be recognized by Disney.

One thing is certain for Disney and other big TV-movie studios -- a business transition is coming, whether they like it or not.

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