Disney Dumps Netflix for Own Service, Plans Online ESPN

Walt Disney, once again shaking up the media industry, said it will stop selling movies to Netflix and begin offering ESPN sports programming and family films directly to consumers via two new streaming services, according to Bloomberg.

Disney’s online entertainment service will begin in 2019, the company said in a  statement. Starting next year, an ESPN online service, which the company had said was in the works, will feature 10,000 live events a year, including Major League Baseball, hockey, soccer and tennis, as well as college sports.

Investors didn’t have to look far to find out why Disney suddenly chose to upend its business. The company reported a rare drop in revenue and profit from falling ad sales at ESPN and a decline at the film division. The moves show how seriously CEO Bob Iger views the threat from streaming services like Netflix and Amazon and their impact on conventional pay-TV.

The new Disney entertainment service will feature Disney films, as well as new programs and content from the company’s Disney Channel library. Those will include movies from the Disney studios and Pixar, but not Marvel or Lucasfilm, the producer of “Star Wars.“

The immediate fallout for Netflix is minimal, though investors may fear other Hollywood studios will move against the company and more carefully restrict what they sell to the online service. Netflix will spend more than $6 billion on programming in 2017, much of it from other media outlets, and has a long term budget of $15.7 billion.

To jumpstart its new services, Disney is buying control of BamTech, the streaming arm of Major League Baseball, in which it previously held a one-third stake. The company is paying $1.58 billion to raise its stake to 75 percent. Disney said it plans to market the Disney and ESPN streaming services directly to consumers, in app stores and from authorized pay-TV providers.

As if to underscore the growing threat to its business, Disney also reported fiscal third-quarter sales that missed analysts’ estimates, because of shrinking ad sales at ESPN and lower results from its film division. Sales were little changed at $14.2 billion in the period ended July 1, Disney said, and trailed analysts’ estimates of $14.4 billion. Profit fell to $1.58 a share, beating the $1.55 average of analysts’ projections.

Profits at the company’s cable networks division fell 23 percent to $1.46 billion, due to higher programming costs and lower ad revenue. Disney warned last year that fiscal 2017 would be difficult, hurt by rising costs to televise National Basketball Association games and fewer films being released by its studio.