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Disney Strikes Content Deal With Sony PlayStation Vue

6 Nov, 2015 By: Erik Gruenwedel

COO Tom Staggs said losses at co-owned Hulu will continue due to accelerated production costs and technology investment

The Walt Disney Co. announced a license agreement delivering ESPN, ABC TV and the Disney Channel to PlayStation Vue, Sony’s upstart subscription streaming TV service. The deal underscores the strength of Disney’s brands in the evolving digital media landscape, according to CEO Bob Iger.

Speaking on Disney's Nov. 5 fiscal call, Iger suggested that online skinny-TV bundles (i.e. Sling TV, Charter Spectrum TV, Time Warner Cable TV and PlayStation Vue) offering less-expensive access and mobility represent both the future and a challenge to pay-TV operators.

Disney will shortly launch DisneyLife in the United Kingdom, the media giant’s first standalone SVOD service.

“We challenge all the legacy distributors to deliver [OTT video] because we think that could be one of the factors in terms of why young people (i.e. millennials) aren’t signing up [for traditional pay-TV],” Iger said.

At the same time, he said, the new digital platforms require well-known branded content to attract young subscribers.

“Sony Vue is a great example of that. These platforms cannot launch successfully without the array of channels that we provide,” Iger said. “It was clear the product they had launched was not penetrating the marketplace as much as I think they expected.”

When asked why ABC licensed rights to “How to Get Away With Murder” to Netflix instead of retaining them, which is what Time Warner CEO Jeffrey Bewkes is advocating, Iger said it was a matter of monetizing content at the “highest level,” which made the most economic sense at the time.

“Longer term, it’s possible that we’ll make different decisions. It is possible off-network programs will end up either being bundled without multichannel services or as part of apps that the company brings out to sell directly to consumers, as is the case with DisneyLife.”

Meanwhile, COO Tom Staggs admitted that segment losses at Hulu would continue as the SVOD service ups content spending and infrastructure investment. Hulu, which is co-owned by Disney, 21st Century Fox and Comcast, is on a mandate by Fox’s Rupert Murdoch to compete effectively against Netflix and Amazon Prime Instant Video.

“We believe it’s going to create value over time, and we think there’s value in [Hulu] strengthening their offering,” Staggs said.

Finally, Walt Disney Studios reported third-quarter (ended Sept. 30) operating income of $530 million, which was 108% higher ($256 million) than operating income of $254 million during the previous-year period. Revenue was relatively flat at $1.78 billion.

Disney Studios, which includes Walt Disney Studios Home Entertainment, attributed much of the enhanced operating income due to increased TV/SVOD distribution results, lower film cost impairments, improved theatrical results and a higher revenue share with the consumer products segment. These increases were partially offset by lower home entertainment results.

TV/SVOD distribution was driven by a lower average production cost amortization rate, the timing of title availabilities in international pay and domestic free television markets as well as SVOD revenue growth internationally. Lower production cost amortization reflected a higher sales mix of catalog titles in the current quarter.

Operating income growth in theatrical distribution was driven by the performance of Inside Out and Ant-Man, compared with Guardians of the Galaxy, Maleficent and no Pixar title in the prior-year quarter. The prior-year quarter also included Planes: Fire & Rescue and The Hundred-Foot Journey, whereas the current year included no Disney feature animation or DreamWorks titles in release. Increased revenue share was due to the performance of Frozen merchandise in the current quarter.

The decrease in home entertainment was due to lower net effective pricing and unit sales reflecting the prior-year quarter performance of Frozen internationally and Marvel’s Captain America: The Winter Soldier worldwide, partially offset by Marvel’s Avengers: Age of Ultron and Cinderella in the current quarter. These decreases were partially offset by lower per unit costs as well as decreased marketing spending in the current quarter.

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