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Does Walt Disney Have What It Takes to Go Head to Head Against Netflix?

By Motley Fool Staff - Oct 3, 2017 at 7:22AM

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The leading entertainment company is ending its deal with Netflix in order to take the reins on distribution.

Netflix (NFLX 2.90%) has built an impressive library of original content in a very short time. But Walt Disney (DIS 1.84%) is one of the few companies with an archive of its own shows and films that are strong enough to compete with the streaming leader.

In this Industry Focus: Consumer Goods video, the cast offers new details on the Disney-branded streaming service expected to make its debut in 2019. They break down the content the company owns -- and is in the middle of producing -- that will be offered as part of the service. Tune in to learn more.

A full transcript follows the video.

This video was recorded on Sept. 26, 2017.

Vincent Shen: Let's moves on to the second service. We've covered a little bit of the ESPN sports side. The second service isn't expected until 2019. To be clear, the pricing for both of these services has not yet been disclosed and probably won't come around until early next year. 2019 is the timeline for this service because that's when the company ends its current agreement with Netflix. Remember that Netflix and Disney originally signed a deal in late 2012 making Netflix the exclusive streaming home for a lot of Disney content, including the new releases from 2016 to 2018. Of course, once that finishes in 2019, Disney will roll out its Disney-branded service. Once Disney has that streaming control in 2019, the company will also be producing lots of new content for the service as well. Again, from that conference, Iger spoke about films and TV shows, he said four or five live-action films, four to five TV series, and three to four television movies are already in production or planned for the service specifically. He also added that the Marvel and Star Wars films initially, not sure if those are going to be included as part of the Disney-brand streaming package, they now will be for sure.

In total, about 400 to 500 films and about 7,000 episodes of TV will be available through this service. Again, I think that just reinforces just how much content this company can leverage when they're ready to roll something out like this.

Daniel Kline: I think what's been overplayed is the Star Wars and Marvel movies. The reality is, to the adult male who is the demographic for those, I'm seeing the Thor movie the day it comes out, and I've seen the Star Wars movie after waiting in line for two days the night it comes out.

Shen: Yeah, but this is for all the rewatchers, I guess. [laughs] 

Kline: I think the Disney Family Library is what's the most valuable. It's those new television shows. Disney has very carefully not done a live-action Star Wars show. And they have all sorts of cartoons and Star Wars and Marvel, and they have some of the Marvel brand extensions on ABC. But think about the power of them saying, "We're doing the first-ever live action Star Wars television show."

Shen: You think this is them saving a little bit of dry powder.

Kline: Absolutely. That's what they're doing. If you look at the Disney deal with Netflix, the value is not that I can watch The Force Awakens eight months after it came out in the theater or whatever the timeline is. The value is Daredevil, Jessica Jones, Luke Cage. Those shows may continue on Netflix, it hasn't been cleared. But the ability to exploit those universes -- I'll watch any show starring a Marvel character. I will watch Ant-Man read the phone book. It's fine. So, I think that's where Disney can really leverage. Then, you add in all the timeless kids programming, aside from the old racist ones they can't show anymore, [laughs] Speedy Gonzales -- no, he's a Universal character. But a lot of those characters -- Mickey Mouse, Donald Duck -- those resonate, and little kids will watch stuff over and over again. So there's a huge library, and they can tie you and I in with just one or two must-see shows.

Shen: Absolutely. And they've talked about how important the kids audience is for them with a streaming package in general. Netflix, I think that was a big point of attraction for them when they originally signed this deal back in 2012. Last thing I want to bring up regarding this whole push from Disney has to do with BAMTech. BAMTech is the technological foundation that is going to power Disney's streaming services. The company started as a project from Major League Baseball, and Disney acquired a 33% stake of BAMTech a few years ago, and it's chosen to invest another billion-plus dollars to take an extra 40% stake, a controlling stake, given how important the delivery infrastructure will be for what amounts to hopefully millions of streaming subscribers once they launch the services.

The takeaway I had here for this was, it seems like that initial 33% investment, seeing the potential there, investing in that technology, and Disney has kind of been preparing itself for this move, hedging its bets. I'm not surprised at all that Iger has been behind all these decisions, considering the way he's led the company in the past.

Kline: The interesting piece about BAMTech is, as Disney makes all these moves, they have partners. They're the foundation, for example, for WWE's network. So are we going to see a situation like Amazon is finding where some of its rivals no longer want to use its technology? They don't break down revenue for BAMTech, so I don't know how much it gets from that. But having a good foundation, you know, if you're getting a streaming service and it works, you're going to keep it. If you go to log in to watch the recent boxing pay-per-view, and you've spend your $60 --

Shen: Or $90.

Kline: Yeah, $90 or $100 to watch Mayweather-McGregor, and you're one of those people who bought it digitally and it didn't play, you are not going to try that again for a very long time. It doesn't matter what they give you back, you missed the fight everyone was talking about. It would be the same thing. If Disney launched a streaming service and your three year olds couldn't watch Cars 2 -- you don't have a three-year-old, but pretend you do -- couldn't watch Cars 2, which is the only thing that will put them to sleep at the moment, you will cancel.

Shen: The execution does need to be seamless.

Kline: Very important.

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