In a surprising announcement, Disney reported third-quarter results fell short of expectations, mostly on the outcome of rising costs for the entertainment conglomerate. It seems these mounting costs are likely related to the company’s new streaming platform, Disney+, which is slated for launch at some point this year.
Specifically, Disney shares fell nearly 5 percent, to $135 by late afternoon, on Tuesday.
Disney chairman and CEO, Bob Iger explains, “Our third-quarter results reflect our efforts integrate the 21stCentury Fox assets enhance and advance our strategic transformation.”
The past few months have been quite telling for Disney, as investors have been closely monitoring the updates for the Disney+ over-the-top streaming service. Set to launch in November (so it is just a few months away), Disney’s management has revealed a plan to bundle ESPN+ and Disney+ and an ad-supported Hulu platform for $12.99; or a basic Disney+ subscription for only $6.99.
Indeed, Disney has seen quite a loss in its direct-to-consumer segment. This is a room in the House of Mouse where Disney+ resides, a space which has grown from $168 million to $553 million since the same period last year. Disney attributes this operating loss increase to the consolidation of the Hulu streaming platform as well as an investment boost to ESPN+ and other costs ahead of the new launch.
This new platform will host not only Disney animated content but also similar fare from Pixar and Marvel, as well as media from the Star Wars franchise. The development of this platform has required significant investment from the company, which is necessary if you want to compete in the same market as the streaming giant—and leader—Netflix. Of course, AT&T is also about to launch its WarnerMedia streaming service, too.
Overall, subscriber bases have softened, of late, and Disney has been banking on this opening the door for them to sweep up the weakness in the market. As a matter of fact, Netflix reported, just last month, its first quarter domestic subscription decline in the company’s history. Netflix, however, blames this dip on weaker programming over the period (implying they should be able to improve the numbers with better programming in the months to come).