21st Century Fox deal, other steps are aimed at positioning the
firm in streaming market
By Erich Schwartzel
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 8, 2018).
Walt Disney Co. Chief Executive Robert Iger gave investors a
preview of what he wants his company's next chapter to be.
After several years of assuaging investors nervous about
cord-cutting and competition from streaming giants such as Netflix
Inc., Mr. Iger, on a conference call with Wall Street analysts
Tuesday, focused on Disney's high-stakes plan to fight back: the
company's own direct-to-consumer offerings and a pending $71.3
billion acquisition of 21st Century Fox Inc.'s entertainment
assets.
"Consumers are picking and choosing from all of the options in
the market," said Mr. Iger, in remarks after Disney's release of
quarterly financial results. "We continue to move full steam ahead
on our direct-to-consumer strategy."
Mr. Iger has reorganized his company and is spending heavily to
implement that strategy. In the three months since his previous
earnings call, Mr. Iger won a bidding war with Comcast Corp. for
the Fox assets, which include the company's film and television
studios, as well as media company Star India and the Sky PLC
pay-television operator. The deal has already been approved by U.S.
authorities at the Justice Department but still needs clearance
from several foreign jurisdictions.
If the deal closes, as Disney says it expects it to next year,
it will put the company responsible for "Avatar" and "The Simpsons"
under the same roof as Mickey Mouse, Luke Skywalker and "The
Avengers." Those brands will then be used to sell consumers on a
Disney-branded streaming service set to launch in late 2019.
Mr. Iger's hope is that the strength of Disney's brand and
characters will allow it to compete in a crowded streaming market
and "thrive alongside Netflix, Amazon and anyone else," he
said.
The focus on direct-to-consumer offerings will suddenly put
Disney, a company best known for traditional film and television
entertainment, in charge of three separate digital services. The
company's ESPN Plus sports-programming streaming service was
launched earlier this year, and Disney will become a majority owner
of Hulu if the Fox deal closes. Hulu is a joint venture among
Disney, Fox and Comcast's NBCUniversal.
"They will basically be designed to attract different tastes or
different audience demographics," said Mr. Iger, referring to the
three different services. The company might bundle the
subscriptions for customers who want all three, he added.
Disney's streaming service, featuring programming that includes
"Star Wars" and "High School Musical," will have fewer titles than
an "aggregation" service like Netflix, he said, and will instead
rely on consumers' perceived demand for the company's
franchises.
The Disney service "does not to have to have close to the volume
of what Netflix has because of the value of the brands," Mr. Iger
said.
It remains unclear how exactly Fox's film and television assets
will fit under the Disney roof, but Mr. Iger nodded to some plans
on the call Tuesday. The company's Fox Searchlight label,
responsible for recent best-picture winners such as "12 Years a
Slave" and "The Shape of Water, " will likely produce for streaming
services with original film and television projects, he said.
Fox's film studio will continue work on existing series, he
said, including planned sequels to "Avatar," "The Fantastic Four"
and "X-Men." Mr. Iger indicated that such films will remain
traditional theatrical releases, rather than be produced for
streaming-service distribution.
The company said certain expenses for its third fiscal quarter
almost doubled from the same period a year earlier to $196 million.
That increase stemmed partly from its agreements to buy the 21st
Century Fox assets, as well as higher compensation costs, Disney
said.
21st Century Fox and News Corp, parent company of The Wall
Street Journal, share common ownership.
Control of Sky remains an open question for Disney. Comcast is
still angling for control of the European pay-TV operator, and
currently has the lead with a bid that values Sky at $34 billion,
or about 5% higher than Fox's most recent offer.
Another round of offers would come from Fox, but Disney has the
right to veto any deal and effectively end the standoff because it
would acquire the Sky stake when its deal closes. On Tuesday, Fox
posted its Sky offer document, satisfying a requirement under U.K.
takeover rules and giving it more time to respond to Comcast's
higher offer.
Mr. Iger indicated Tuesday that he wanted to win Sky, citing it
as one of the Fox international assets that fit into Disney's
"global growth strategy."
In the third quarter, Disney posted year-over-year increases in
net income and revenue, if not to the extent that most Wall Street
analysts expected. Revenue climbed 7% to $15.2 billion and net
income rose 23% to $2.9 billion.
Revenue was driven by a 20% increase in the company's
studio-entertainment division. Disney's "The Incredibles 2" set a
box-office record during the quarter, becoming the top-grossing
animated film to date with nearly $600 million in the U.S. and
Canada. Another major release for the quarter, "Avengers: Infinity
War," has collected more than $2 billion world-wide.
Disney's film arm had a rare misstep during the quarter, too,
with "Solo, " now the lowest-grossing "Star Wars" title in history
at $213 million.
--Micah Maidenberg contributed to this article.
Write to Erich Schwartzel at erich.schwartzel@wsj.com
(END) Dow Jones Newswires
August 08, 2018 02:47 ET (06:47 GMT)
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