Carving out a spot in the ever-crowded direct-to-consumer streaming market is an expensive proposition – and Disney is ready to spend.
DTC is “a bet on the future of this business,” Disney CEO Bob Iger told investors on Tuesday, the equivalent of pouring money into building a theme park.
“We are deploying capital so that the long-term growth of this company is stronger than it would have been without these investments,” Iger said.
Disney, which beat earnings estimates overall, said that its DTC and international segment posted revenue of $918 million and an operating loss of $136 million. The company expects that the money it’s allocating to its DTC efforts will negatively impact financial results again next quarter by around $200 million, mostly related to its streaming subsidiary ESPN+.
In an SEC filing in January, Disney revealed a $469 million loss due to higher operation, programming and production costs related to its consolidation of BAMTech, the technology Disney uses to power its DTC streaming services, including ESPN+.
But no pain, no gain.
While BAMTech may have created a loss on Disney’s 2018 balance sheet, it’s proving its worth as the underlying tech behind ESPN+, and will support Disney+ when it launches later this year.
You need reliability and a good user experience, especially during peak consumption periods, if you’re going to play and win in the streaming wars.
For instance, after Disney shelled out $1.5 billion on a five-year deal with UFC in May 2018, Iger said that 600,000 people signed up for ESPN+ during the first UFC fight night.
BAMTech handled just under 15,000 transactions a minute during that first fight, Iger said.
“The fact that we have a technology platform that is working, a user interface that is working, the ability to sign up consumers en masse … all adds up to a very positive picture ahead of the launch of the Disney+ service,” he said.
But the stability of underlying technology doesn’t matter if there isn’t enough content to make a streaming service sticky. For ESPN+, Iger hopes more combat sports will drive growth in the coming months.
For Disney+, that means funding original content. It takes billions to do that, and Iger knows it.
“Since we are betting on this DTC business long term, we obviously have to fuel it with intellectual property,” he said.
Netflix (which, P.S., doesn’t consider Disney a competitor) is starting to act a bit like a movie studio – but hey, Disney already is a movie studio.
“We’re going to leverage the people and the capabilities of all of our traditional businesses that we’re doing today to grow the product with some incremental cost, of course – but very efficiently,” Iger said. “That gives us the ability to scale up nicely in terms of our output and not invest that much in overhead or infrastructure to do it.”