Disney revenues surge as world waits for streaming service

Revenues at ‘The House of Mouse’ have surged more than 34% for its final quarter of 2019, collecting more than £69.5 billion for the full year.

While investors will certainly be happy with the news, perhaps the best is yet to come. Next week, Disney’s own streaming service will enter int frame for the first time, while it has also been confirmed the service will launch in the UK on March 31. With analysts expecting more than 15 million subscribers in the 12 months, 2020 could be a very profitable year.

“Our solid results in the fourth quarter reflect the ongoing strength of our brands and businesses,” said Robert Iger, CEO of The Walt Disney Company. “We’ve spent the last few years completely transforming The Walt Disney Company to focus the resources and immense creativity across the entire company on delivering an extraordinary direct-to-consumer experience, and we’re excited for the launch of Disney+ on November 12.”

Fourth Quarter Full Year
Total Revenue $19.1 billion $69.5 billion
Costs $16.8 billion $57.7 billion
Net Income $1.05 billion $11.05 billion

Despite costs climbing 49% for the three months ending September 28, share price in overnight trading climbed more than 5%. With the launch of the $7 streaming service only days away, it is clear Disney is not shy about spending some cash to compete with the likes of Netflix and Amazon Prime on a global scale.

Iger as bet big on the streaming service to lead a new wave of revenues at Disney, and for the sceptics out there, there are now several interesting partnerships to back-up an already packed content library.

On the telco side, Disney has teamed up with Verizon to offer free subscriptions to customers who have an unlimited data tariff, while iLifers will receive a free subscription for 12 months when purchasing a new Apple TV.

Although the content world is certainly looking congested already, Disney looks like a service which could challenge the leading pair. Disney has the brand awareness, content library and aggressive investment strategy to make it work, though delivering effective customer experience will be critical. November 12 will be the day customers first get the opportunity to taste Disney+, so judgement will be reserved until this point.

AT&T delivers bullish 3-year outlook amidst a mixed Q3

US telecom and media giant AT&T has reported a steady Q3, with revenues slightly down coupled with improved operation. A bullish 3-year outlook to further de-leverage is welcome news to the capital market.

The company lost 1.2 million premium pay-TV subs, but the HBO business registered growth. The corporate level revenue of $44.588 billion is a 2.5% decline from a year ago (2% decline on constant currency). Operating income grew by 8.7% to reach $7.901 billion, up from $7.269 billion a year ago. EPS was dropped by 23% to $0.50.

When it comes down to business group level, the Communications group delivered a largely steady result. Wireless service revenues edged up, helped to a large extend by the increase in postpaid subscriber base (including 173,000 postpaid smartphone subs) and the upward move of postpaid ARPU ($55.89, up from $55.58 a year ago). The entertainment part of the Communications business was less steady. The company lost 1.16 million “Premium” pay-TV subs (DirecTV satellite and U-verse IPTV) and 195,000 OTT-TV (AT&T TV Now) customers. The total number of AT&T pay-TV subs stood at 21.56 million by the end of Q3, down from 25.15 million a year ago.

Numbers from WarnerMedia, the second largest business group of AT&T, epitomised the “mixed” nature of the results. The total group level income went down by 4.4% to $7.8 billion, but HBO reported an impressive 10.6% year-on-year increase in revenue to reach $1.8 billion, and the $714 million operating income represented a 13.7% growth.

The strong performance of HBO came at a time when AT&T is about to launch HBO Max later today. Priced at $14.99, the current HBO package is the most expensive offer among the major video streaming services (Netflix and Amazon at $12.99, Disney+ at $6.99, Apple TV+ at $4.99). It remains to be seen how AT&T will choose between maxing the user base by pricing HBO Max more aggressively and defending profitability by retaining it at the premium tier.

Guidelines to 2022

The company delayed its Q3 results reporting by a week to finalise its discussion with activist investor Elliott Management Corporation. Presumably as a result of that discussion, AT&T published a rather detailed 3-year financial guidance (to 2022). The key items include growing revenues by 1-2% CAGR, EBITDA target set at 35%, free cash flow to reach $30-32 billion, and no major M&A planned.

The items that made most headlines are related to debt reduction. Specifically, AT&T promised to “Pay off 100% of acquisition debt from Time Warner deal; net-debt-to-adjusted-EBITDA5 of 2.0x to 2.25x in 2022”. Its current net debt to adjusted EBITDA ratio is 2.5, down from 2.66 at the beginning of the year.

According to the analysis by the Washington Post, the Time Warner deal could have cost AT&T over $108 billion including the debt it assumed from Time Warner at the acquisition. AT&T would not be able to pay off its debts, which stood at $153 billion by the end of September (coming down from $166 billion at the end of 2018) with the income generated from its business operations. This means more non-critical assets will be divested. The company is on way to generate $14 billion through asset monetisation in 2019 and plans to recoup $5-10 billion of non-strategic asset sales in 2020.

“The strategic investments we’ve made over the last several years have given us the essential elements to meet growing demand for content and connectivity,” said Randall Stephenson, AT&T chairman and CEO. “Our 3-year plan delivers both substantial and consistent financial improvements over the next 3 years. We grow revenues, EBITDA and EPS every single year, and free cash flow is stable next year, but then grows in both of the next two years, as well. And all of this is inclusive of our investment in HBO Max.”

When it comes to what qualifies as strategic or non-strategic, Stephenson told investors “we have no sacred cows. We’re always open to making portfolio moves.” However, DirecTV, albeit being highlighted by Elliott as one of the failed acquisitions, is not viewed as a target to liquidate in the near future. The business “will be an important piece of our strategy over the next 3 years”, said Stephenson.

The guideline largely reflected what Elliott’s letter to AT&T has demanded. In addition to the defence of DirecTV, probably the only other exception AT&T has made in its guideline was Elliott’s call for management change – AT&T stated “CEO transition not expected in 2020”.

Microsoft unveils details for Project xCloud public trial

It’s been a year in the making, but Microsoft is going through the final preparations to launch its game-streaming service, Project xCloud.

The project itself will allow Xbox gamers to play their favourite games by streaming the content onto their mobile devices. Although the technology giant has had to fit out its data centres with specialist servers to run the games, the extensive geographical footprint of its data centre network could make Microsoft a force to be reckoned with in the emerging cloud gaming segment.

“Our vision for Project xCloud is to empower the gamers of the world to play the games they want, with the people they want, anywhere they want,” said Kareem Choudhry, Corporate VP for Project xCloud at Microsoft.

“We’re building this technology so gamers can decide when and how they play. Customers around the world love the immersive content from Xbox in their homes and we want to bring that experience to all of your mobile devices.”

Next month, the public trial will be launched. The US, UK and Korea have been selected as the initial testing grounds, with consumers able to sign-up here. All you’ll need is a wireless controller with Bluetooth and a stable mobile internet connection of 10 Mbps.

More to follow…

NBC’s opportunity to cut through the streaming noise with Olympics

With NBCUniversal set to launch its own streaming service in 2020 the risk of content fragmentation is becoming more apparent, but this only underlines the importance of a niche.

Although many of these streaming services might think they are doing something innovative or novel, in reality they are copycatting Netflix. The big issue is that Netflix is already moving onto the bigger and better. Original content is the new frontier, though NBCUniversal might have stumbled across another unique selling point.

“Peacock will be the go-to place for both the timely and timeless – from can’t-miss Olympic moments and the 2020 election, to classic fan favourites like The Office,” said Bonnie Hammer, Chairman of Direct-to-Consumer and Digital Enterprises business unit.

The Olympics, and live streaming sport on the whole, is an area which the streaming giants have largely ignored to date. Amazon has dabbled with tennis, NFL and has a few English Premier League games for the 2019/20 season, while Twitter (admittedly not a streaming service) has got a partnership in place with the PGA Tour. YouTube has toyed with some live events, but never nailed it. It’s a bit sporadic, rather than a coherent assault.

With the Tokyo 2020 Olympics, NBCUniversal has a great opportunity to carve a niche and create a unique position in streaming ecosystem.

Through the NBC Olympic channel, the company has produced every Summer Olympics since Seoul in 1988 and every Winter Olympics since Salt Lake City in 2002. It has all media rights on all platforms to all Olympic Games through to 2032, paying $7.75 billion (US rights) in 2014.

This is a major attraction for consumers around the world and could form the central cog of a new type of streaming service if the team plays its cards right. Olympics coverage averaged 27.5 million viewers across all platforms, with streaming growing particularly. Nearly more than 2.71 billion minutes of coverage was streaming from the Rio Olympics, more than double the previous two events combined.

This is what the new streaming challengers need to understand; they cannot replicate the success of Netflix.

Disruptors to a fast-evolving ecosystem often try to do this and it fails due to the rapidly changing landscape. Netflix found success in being a content aggregator, bringing together titles from a variety of different sources. This model is dead. It cannot be replicated.

The creation of Peacock is another sign of content fragmentation. From next year onwards, Netflix viewers will no-longer be able to view titles such as ‘The Office’, ‘Parks and Recreation’, ‘Brooklyn Nine-nine’ and ‘30 Rock’. This is a consequence of each of the newly emerging platforms. When HBO Max emerged, Netflix lost ‘Friends’, ‘The Fresh Prince of Bel-Air’ and ‘Pretty Little Liars’. With Disney+, all Marvel content will be removed from the Netflix library.

This is a dangerous position for any challengers. The Netflix model is dead because everyone wants to home their content exclusively. The value to the consumer of the aggregator model which drove Netflix in the early years is dwindling away as the content landscape becomes increasingly fragmented.

This is the importance of original content for the streaming services; it allows the creation of a selling-point beyond price. Admittedly, the Netflix original content will not appeal to everyone, but it has big enough budgets to create the breadth and depth, so each show does not have to be a catch-all, mass market product. Anyone who thinks they can compete with Netflix on original content will have to spend a lot of money to do so.

With coverage of the 2020 Election and the Tokyo Olympics on the NBCUniversal streaming platform, there is a notable opportunity to create a proposition which can cut through the noise.

Another very interesting opportunity for NBCUniversal is a fast-emerging trend in the content world; interactivity. This was a notable theme at IBC 2019, and sports presents an opportunity like few other genres.

Viewers could personalise their experience through the selection of different cameras or commentators. Value add content can be generated for months prior to the live-streaming of the event. Technologies such as virtual and augmented reality have a natural home in the sports ecosystem. Partnerships can be developed for additional monetization. There are endless troves of data points to engage every niche of viewer. The opportunity to build a more complete story all the way through the year is very evident.

The question is how aggressive NBCUniversal will be. Will it expand into other sports and live events? Will it look to drive engagement outside of the US market? These are unknowns and will largely be dependent on the delivery of the Tokyo Olympics, though it has a very good opportunity.

IBC 2019: European Broadcasting Union joins FANG regulatory choir

The European Broadcasting Union (EBU) is the latest organization to start singing the praises of greater regulation, transparency and accessibility for the internet giants.

It is starting to become a tune to which we are all accustomed to, and it should come as little surprise the victims of aggressive disruption are calling for greater control, but the EBU has joined the regulatory choir at IBC 2019. Speaking during the conference, Noel Curran, Director General of the EBU, fired the shots across the Atlantic at Silicon Valley.

“Why is there no regulation in terms of data?” Curran stated. “Right now, we have an unregulated social media sector, being dominated by four or five big companies that have unprecedented amount of control.”

Again, this is a familiar story. Momentum has continued to gather behind the technology giants of Silicon Valley, compounding an already incredibly influential position. The broadcasters have been left behind, the telcos are attempting to drive relevance and the politicians are no-longer the most influential people in a country.

To add some context to the situation, one of the reasons ‘traditional’ broadcasters are in such a precarious position right now is a lack of evolution. This is an industry which progressed very little prior to the introduction of the streaming giants. Content might have changed, as has the technology to deliver said content, but the business models and engagement of consumers was stagnant.

The door was open for disruption, and if an industry doesn’t disrupt itself, troublemakers from the outside will do it.

Aside from the technology, the talent and the budgets, the FANG companies can harness the power of insight. As Curran points out above, these companies have a treasure trove of information the ‘traditional’ broadcasters can only dream of accessing. It not only allows the disruptors to create innovative business models through hyper-targeted advertising but enables them to make smarter decisions. FANG companies know their customers intrinsically, and it is fuelling growth.

This is another gripe from the ‘traditional’ broadcasting industry; the likes of Netflix and Amazon are not enthusiastic about sharing the wealth of insight. All3Media CEO Jane Turton confirmed what many of us already knew this week; the FANGs haven’t ever voluntarily or knowingly shared this valuable insight, and this is not changing.

This is the competitive edge Silicon Valley has. Sharing this data might encourage more of the ‘traditional’ broadcasting industry to sympathise with the FANGs, however why would they want to erode their advantage? It isn’t a level-playing field right now, though this is only because the FANGs are more forward-thinking and resourceful when it comes to the digital economy.

Perhaps this is something the ‘traditional’ broadcasting lobby will be pushing for in the future. Access to the data and regulation which forces FANG to play nice. The technology giants will of course resist, and we have already seen how powerful its own lobby can be, but the number of opponents is starting to add-up.

Disney+ to launch in November as streaming segment starts to look crowded

Disney has announced it will launch its video streaming service in Australia, New Zealand, Canada and the Netherlands alongside the US in November, but how much appetite is there in the market?

This is the big question which the streaming world is facing; how many streaming services can be introduced before saturation point is reached in the profitable segment?

Alongside the likes of Netflix, Prime Video, Hulu, Now TV, YouTube, Fubo, Sling TV and several other niche services such as Nickelodeon and Fox News, Disney+, HBO Max and Apple TV will be fighting for the consumers attention. With so much fragmentation, you have to wonder whether the first-golden age for the streaming segment is coming to a close.

Today, Disney+ has given concrete plans for its launch, while Apple has been the subject of rumours. At Disney, the streaming service will debut in the US at the beginning of November, in Canada and the Netherlands on 12th November and in Australia and New Zealand on the 19th November.

Looking at the launch, Disney does seem to be ticking the right boxes in terms of content, it already owns an impressive library and has got some promising commitments to original titles, but you have to wonder about everything else.

Let start with experience. The likes of Hulu, Netflix and Prime Video have been honing their platforms for some time, and this could be one of the defining feature when it comes to winning the scrap for long-term subscribers. One of the attractive elements of OTT streaming services are the month-by-month commitment; customers can up and leave very quickly should they find issue with the service and getting them back will be tough.

Disney does not have any experience when it comes to creating or managing these platforms, whereas rivals have got years behind them. This could be a very important factor, especially when it comes to mobile.

Another challenge Disney will face, and we are surprised it hasn’t done more to address it on launch, is the brand awareness of the service. Fighting for eyeballs is a very expensive and tricky game to play, and while Disney has one of the most prominent brands on the planet, it has zero credibility when it comes to the delivery of digital content. Some might also question the breadth and depth of content which the library will contain.

This is why we are surprised Disney isn’t launching the service through local partnerships. Netflix and Amazon have already shown how powerful partnerships can be, embedding services in existing content aggregator platforms is an excellent way to win eyeballs and tempt subscriptions. This would have been an obvious route to take, leaning on the credibility and billing experience of a local partner, a telco for example.

That said, it is not too late. The service will be expanded to every major market by the end of the year, Disney claims, and there certainly are some multi-national telcos who could help generate exposure and credibility in some major markets. Vodafone or Deutsche Telekom could offer excellent exposure across Europe, as would Telefonica, as well as the LATAM markets. These partnerships could offer a direct, trusted and validated link to local consumers.

Another element to consider for the telco partnerships is the delivery of content over mobile. This is a different dynamic than the traditional means of viewing content, and few can offer the same expertise as the telcos. Mobile could be a significant tool for the armoury moving forward, and it will be interesting to see how the experience is received by consumers.

However, this does not address the wider issue which is lurking on the horizon; customer fragmentation.

When there were only two or three major services available, consumer wallets might have been able to tolerate numerous subscriptions. However, it is quickly getting to a point where choices will have to be made, as these services are not priced that cheaply anymore.

£6.99 or £10.99 isn’t realistically that much, however the quality of the services might decline. In years gone, these services were aggregators, but with the content owners clawing back titles off rival platforms, the libraries will get smaller. With Disney for example, all the Marvel content will be taken back, and with HBO’s service, titles like Friends will be removing from wider distribution.

What is worth noting is that original content could replace some of these titles, however, the pursuit of the next Breaking Bad or Game of Thrones is a perilous pursuit; not everything will be a winner, or appeal to a wide enough audience. There is a risk the quality of content could degrade as the streaming segment becomes more fragmented.

This is of course a negative view on the quality of content, the increased competition might welcome in a new era of quality programming. However, there are a lot of duds which are launched onto the unsuspecting world.

It is also worth noting that there is plenty of room for growth across the world. Markets like the US, UK or Germany might not present much greenfield growth for new subscribers, but there are still a few more hundred million in developed and developing markets to capture profits from.

Since Netflix changed the entertainment world with its streaming offering, hoovering up revenues, many have tried to replicate the success. You have to wonder how many services the segment can tolerate and remain the bountiful bonanza which many investors have been promised.

Third-parties are next battleground in video streaming war

Securing a partnership with the likes of Netflix and Amazon might be the golden-ticket for the telcos, but no-one should forget they have as much negotiating power as the OTTs.

For the telcos, convergence is an oasis of profit in the barren desert of the connectivity industry. As traditional means of generating cash are either destroyed (SMS and voice tariffs) or increasingly squeezed (CAPEX investments for 5G), many telcos are searching for differentiation to charge more and prove they can add value beyond the utilitised connectivity column. Content is a very popular route for many to take.

Aside from attempting to create content platforms, more telcos are seeking third-party relationships to move into the aggregator business model. This is a very sensible approach to business, the telcos can add a lot of value to the OTTs and securing a partnership with one of the more prominent streaming players is a key cog to their own ambitions. However, despite the desperation of the telcos, they should consider themselves on equal terms to the OTTs.

“Every telco is fighting to become an aggregator, but there is also a battle between the streaming OTTs to gain visibility,” said Paolo Pescatore of PP Foresight.

As Pescatore notes, outside of the two major players in the streaming world (Amazon Prime and Netflix), achieving visibility and scale can be very difficult. This is and will continue to be an incredibly congested field, therefore the relationship between telcos and OTTs could add an edge for any challenger.

Looking at the growth opportunities for the OTTs, there is plenty of cheddar left on the table, though in the developed markets, there are only crumbs left. Take the US for example, here Netflix subscriber growth has slowed, suggesting the glass ceiling for direct customer acquisition has been reached, or will be in the near future. The question is how these final customers can be engaged? Third-party relationships are key here.

At IBC last year, Maria Ferreras, VP of EMEA Business Development at Netflix highlighted that partnerships with telcos were an important cog as the streaming giant continues to evolve. At the time, the discussion was primarily from a billing relationship, though there are plenty of other opportunities.

Partners with their own content platform offer Netflix and Amazon something incredibly important; real-estate. Whoever can secure the most prominent position on the content platform will gain additional visibility and engagement with customers. It is evidence the OTTs are buying into the convergence strategies employed by the telcos, but also the value of the telco relationship with the customer.

Looking around the world, these partnerships are becoming much more common. Netflix has been embedded in the Sky platform in the UK, while Amazon Prime has been integrated into the Virgin Media platform. Mexico’s Totalplay has become the first operator in LATAM to add Amazon Prime to its TV service, while Vodafone Spain has secured partnerships with Netflix, HBO Spain and Amazon Prime.

There are of course numerous ways in which these partnerships can develop. Some are simply billing relationships, allowing the streaming service to be added onto the monthly bill, while some can have the OTT experience embedded into the content platform offered by the partner. What is clear, however, is this is an arms race from the OTTs.

The more partnerships which are in place, the more opportunity there is to engage potential customers and increase subscriptions. These partnerships are not only about securing visibility or accessing billing systems, but also leaning on another brands credibility to engage customers who wouldn’t have been previously accessible.

Interestingly enough, there aren’t many telcos or content providers who have relationships with more than one of the streaming giants. This might be a coincidence, or there might well be a desire from the OTTs to secure exclusivity through the platform of choice, even if it is not made official or public.

The challenge which many will face is going toe-to-toe with Amazon and Netflix. If these partners are securing the best relationships with the telcos, they will gain the most eyeballs on their services. Disney is company which will certainly want to lean on relationships with third-parties, but it will have to move sharpish to ensure it is not shut out.

Although Disney is one of the most prominent brands on the planet, it is almost unknown in the content world. This will present a challenge in two ways. Firstly, cutting through the background noise to educate the user on its offering, and secondly, the billing relationship.

For both of these challenges, third-party relationships with telcos and content platform owners can help. A direct line of communication is already in place, visibility can be offered through apps, billing relationships already exist, and third-parties are looking for partners to help build bundling options.

If Disney is going to be successful in its pursuit of streaming fortunes, it will need more than engaging content. It already has the content, and the ambitions for original content creation do look promising. The challenges will be in terms of securing visibility and credibility in the eyes of the consumer.

Telcos should realise sooner rather than later that they are an equal partner to the OTTs in this context, as they are just as desperate to secure favourable partnerships as the telcos. This is the next battleground in the streaming race; partners mean prizes.

The UK is turning to VoD – Ofcom

Half of UK homes now subscribe to TV Streaming services, reveals a new Ofcom report, as the country increasingly opts for video-on-demand.

The precise proportion is 47%, which is lower than some might expect given the apparent ubiquity of Netflix, Amazon Prime, etc, but still a significant jump from 39% just a year earlier. Furthermore, since many people have more than one service, the total number of subscriptions increased by 25%. If this keeps up it won’t be long before nearly all of us spend our evenings consuming copious amounts of VoD.

This is the headline finding from Ofcom’s latest Media Nations Report, which takes a deep look at the country’s media consumption habits. Any parent won’t be at all surprised to hear that younger people far prefer on-demand video over traditional broadcast and, as a result, consumption of the latter is in rapid decline. Thanks to the oldies broadcast telly is still the most popular form of video consumption, but not for long.

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“The way we watch TV is changing faster than ever before,” said Yih-Choung Teh, Strategy and Research Group Director at Ofcom. “In the space of seven years, streaming services have grown from nothing to reach nearly half of British homes. But traditional broadcasters still have a vital role to play, producing the kind of brilliant UK programmes that overseas tech giants struggle to match. We want to sustain that content for future generations, so we’re leading a nationwide debate on the future of public service broadcasting.”

The UK state seems to be in a mild panic about the decline in viewership of what it considers to be public service broadcasting, which means any old rubbish that’s publicly-funded. It’s highly debatable how much of the content produced by the BBC provides any kind of public service other than distracting us for a few minutes, but Ofcom seems to still think it’s really important.

This last table is especially illustrative of the current state of play, with younger adults all about YouTube and Netflix. If Ofcom had surveyed teenagers we suspect that bias would have been even more pronounced and as these trends continue the TV license fee is going to become increasingly hard to justify.

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Disney complicates video streaming market with $13 per month bundle

Content giant Disney has unveiled what it presumably hopes will be a Netflix-busting bundle of Disney+ ESPN+ and Hulu in the US.

Disney+, the core streaming service for Disney movies and other video content, had previously been announced at a cost of $7 per month. Disney also owns the majority of sports content network ESPN, and general TV content service Hulu, so it’s bundling them together with Disney+ for a grand total monthly cost of $13 – five bucks less then they cost individually and coincidently exactly the same as regular Netflix costs in the US.

“I’m pleased to announce that in the United States, consumers will be able to subscribe to a bundle of Disney+, ESPN+ and ad-supported Hulu for $12.99 a month,” said Disney CEO Bob Iger on the company’s recent earnings call. “The bundle will be available on our November 12 launch date.”

Commentary on this seems to be universally positive, with many observing that it’s very good value for money.

“The move throws down the gauntlet to Netflix and other rival services,” said Tech, Media and Telco Analyst Paolo Pescatore. “For sure it is competitively priced and seeks to reduce fragmentation. Initially, it seems that Disney is looking for scale but will need to increase revenue to recoup the significant investment. Consumers have some tough decisions ahead as they can’t sign up to all the streaming services.”