Disney’s second quarter earnings results provide a small window into the costs a traditional media company incurs as it tries to compete with technological rivals like the dominant streaming service, Netflix.
The company’s high-profile, $52.4 billion offer to acquire much of 21st Century Fox’s film and television assets is motivated, at least in part, by the competitive threat posed by the tech giants known by the predatory acronym FAANG (Facebook, Apple, Amazon, Netflix and Google).
So, too, is Disney’s plan to operate its own direct-to-consumer offerings, the newly launched ESPN+ sports streaming service, and planned Disney-branded service. “So far, so good,” said CEO Bob Iger of the sports offering, which is attracting users to its free trial and, more importantly, is working.
“We believe that you’re gonna continue to see real growth in digital platforms, and continued erosion on the traditional side,” Iger said in an interview with CNBC. “And I think, ultimately, the new business will eclipse the older business. I think it’ll probably happen sooner than most people initially predicted, and that’s why we’re going into this in a big way.”
Here’s a look at some of the costs associated with Disney’s digital ambitions, as reported during today’s March quarter earnings call.
Disney said it expected to incur deeper losses associated with its 30% percent stake in Hulu, and that its investment in bulking up BAMTech’s technology would have “an adverse impact” on the Media Network Group’s results.
The Burbank media conglomerate agreed to provide Hulu about $450 million calendar year, and has already spent $114 million of this commitment through March, according to regulatory filings.
Chief Financial Officer Christine McCarthy told investors today that Hulu has been spending money on original programming and marketing. Last week Hulu announced it had surpassed the 20-million subscriber mark thanks, at least in part, to exclusive offerings like The Handmaid’s Tale.
As it strives to compete with services like Netflix, Hulu’s losses deepened. McCarthy didn’t quantify the the loss.
Meanwhile, McCarthy said ongoing investment in the technology platform of BAMTech, in which Disney acquired a controlling stake last year, would have an “adverse impact” of $180 million this fiscal year, compared with the prior year.
McCarthy warned $100 million of that sum would hit in the third quarter.