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Disney's Magic Kingdom conjures movies and sports streaming service

Updated: 2017-08-11 09:29

Disney's Magic Kingdom conjures movies and sports streaming service

This photo taken on June 1, 2017 shows Chief Executive Officer of Disney Robert Iger as he attends the 2017 Los Angeles Evening of Tribute Benefiting the Navy SEAL Foundation in Beverly Hills, California. [Photo/VCG]

NEW YORK-With new streaming services in the works, Walt Disney Co is trying to set itself up for a future that is so far largely been framed by Netflix.

Quite simply, that means "stuff I want to watch when I want it".

The Magic Kingdom is launching its own streaming service for its central Disney and Pixar brands and another for live sports. This will allow it to bypass the cable companies it relies on-and Netflix-to charge consumers directly for access to its popular movies and sporting events.

"They're bringing the future forward. What they talked about were things that looked inevitable, at some point," said Brian Weiser, an analyst at Pivotal Research.

What is less clear is if Disney will be able to make big bucks from it.

This is important as the decline in cable households and the shift to smaller, cheaper bundles pressures the profitability of Disney's cable networks. Fewer subscribers and fewer viewers mean less money.

In the nine months through to July 1, cable networks' operating income fell 13 percent from the year before to $4.12 billion.

Starting in 2019, the only subscription streaming service with new animated and live-action Disney and Pixar movies will be the Magic Kingdom's own app. That will include Toy Story 4 and the sequel to the huge hit Frozen.

Older movies will be there too, as well as shows from the Disney Channel, Disney Junior and Disney XD, and original television and films. That could be hugely attractive for families with young children in the United States.

Disney is ending an exclusive earlier movie deal with Netflix and the streaming giant's shares have suffered. Netflix has grown into an entertainment juggernaut in its own right as it focuses more on its own exclusive programming.

Netflix already seemed to be bracing for the potential loss of the Disney movie rights earlier this week when it announced its first-ever acquisition-the purchase of Millarworld.

This is a comic book publishing company that will develop films and kids shows based on its portfolio of cartoon characters.

Disney might bring more of its properties-particularly its Marvel superheroes and the Star Wars franchise-under its wing, and could even offer them as separate streaming services.

Robert Iger, the CEO at Disney, is considering whether the entertainment giant should continue licensing Marvel and Star Wars movies to outside services such as Netflix or move them into the Disney app.

Still, this new service will be available in "multiple markets" outside the US as well, taking advantage of the company's global appeal.

As for its sports venture, Disney had already decided it would launch a streaming ESPN service, even though it is not meant to compete with the company's TV channels.

The sports service will be rolled out in early 2018, a little later than previously announced, and will air baseball, hockey and soccer games, tennis matches and college sports through ESPN's popular mobile app.

Yet ESPN will not be streaming pro football or basketball, at least initially.

Customers will also be able to buy fuller streaming packages from the baseball, hockey and soccer leagues, and watch them on the ESPN app.

"Ultimately, we envision this will become a dynamic sports marketplace that will grow and be increasingly customizable, allowing sports fans to pick and choose content that reflects their personal interests," CEO Iger said on a conference call with analysts.

Disney, though, will have to be careful that it does not transfer too much sports programming from its TV channels to the app. Getting the balance wrong could upset cable companies and weigh on the price they pay for ESPN.

To roll out its streaming services, Disney is taking majority control of BAMTech, the streaming arm of Major League Baseball, for $1.6 billion. It now owns 75 percent of the company.

The acquisition and the new services will be "an entirely new growth strategy" for Disney, Iger pointed out.

The new streaming services will likely "accelerate the erosion" of the company's television networks, especially if other major cable firms make similar moves, Moody's analyst Neil Begley stressed.

But Iger has argued that BAMTech gives Disney "optionality" if the cable ecosystem changes further. "If there is greater "erosion"-say, if more people drop cable bundles or choose cheaper bundles without key Disney channels-the company has more ways to get its entertainment directly to customers," Iger said.

He also confirmed there are no plans to sell the Disney or ESPN TV channels directly to customers on the apps.

But having a direct relationship with customers tells Disney exactly what they are watching, giving it powerful tools and information that could help feed decision-making and, on the sports side, sell advertising.

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