Disney & Netflix: Unhappily Ever After


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What's going on?

After reporting a slump in profits in its latest quarter on Wednesday, entertainment giant Disney said that it will be stepping back from its partnership with Netflix and launching its own streaming service. Unimpressed investors still sent Disney’s stock down by almost 4%…

What does this mean?

ESPN, a sports network that’s one of the biggest media brands in Disney’s portfolio, was again the culprit for Disney’s profit miss: more and more viewers are ditching their cable TV subscriptions, which means less cash for ESPN from cable providers.

Industry experts have argued that the mass migration away from cable is an important reason for Disney to launch its own streaming services. That means Disney plans to sever some of its ties with Netflix, which saw its stock drop by 1.5% (presumably as investors fear that the loss of content and a big new rival will hurt Netflix’s subscriber numbers).

Why should I care?

For markets: Disney warned that its investment in streaming will dent profits.

Disney also announced on Wednesday that it was spending $1.6 billion to take a bigger ownership stake in a streaming technology firm called BAMTech (Disney already bought about a third of the company last year for $1 billion). BAMTech’s expertise will help Disney build its streaming service. Eventually, that investment may turn out profitable; but for now, it’s just expensive, and will hurt Disney’s near-term profits.

The bigger picture: The streaming landscape is getting crowded quickly.

There are a lot of streaming options already: CBS All Access, HBO GO, Amazon and Netflix are in the game, while other media companies, like Viacom, are planning more launches. Consumers probably won’t pay for all of these services, so the market for streaming will likely have to shrink – and not everyone will be a winner.

Originally posted as part of the Finimize daily email.

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