Walt Disney (DIS) to Sever Ties With Netflix (NFLX) While It Beats Q3 Earnings Estimates

Even as ESPN continued to be a drag on its bottom line, The Walt Disney Co. (NYSE:DIS) surprised analysts by posting fiscal third quarter earnings that beat estimates, helped in part by the strength of its theme parks.

The company reported earnings of $1.58 per share, topping the average estimate of $1.55 per share but lower by 2% on a yearly basis.

Revenues came in at $14.24 billion, missing the consensus forecast of $14.42 billion.

Disney continued to feel the blow of the issues that plagued ESPN.  The business suffered from higher programming costs, weaker advertising revenue and severance and contract termination costs, leading to a 23% year-on-year decline in operating income in the company’s cable networks segment, which totaled $1.46 billion for the quarter.

Revenues for this segment also fell 3% on a yearly basis to $4.09 billion. ESPN contributes about 30% of Disney’s revenue.

ESPN in 2011 had more than 100 million subscribers, according to Nielsen, and now that figure stands at 87 million as consumers continued their cord-cutting ways.

By contrast, operating income for Disney’s parks and resort segment grew 18% year over year to $1.17 billion, which reflected an increase in the company’s international operations, particularly at Shanghai and Paris.

Revenues for this segment rose 12% to $4.89 billion.

Strategic Shift in Distribution

Disney, meanwhile, announced that it will end its distribution agreement with Netflix (NASDAQ:NFLX) for movies, beginning with the 2019 slate.

Disney instead will launch a new direct-to-consumer streaming service that year.

The company had a “good relationship” with Netflix, but it decided to exercise an option to remove its content from the platform, CEO Bob Iger said in an interview with CNBC.

Disney will also launch an ESPN-branded, multi-sport video streaming service early next year featuring about 10,000 sporting events annually from the MLB, NHL, MLS, Grand Slam tennis and college sports.

These projects will be driven by Disney’s acquisition of an additional 42% interest in BAMTech from MLB Advanced Media for $1.58 billion.

BAMTech is a global leader in direct-to-consumer streaming technology and marketing services.

The company previously bought a 33% interest in BAMTech in 2016, and the deal included an option to purchase a majority stake over several years.

“This acquisition and the launch of our direct-to-consumer services mark an entirely new growth strategy for the company, one that takes advantage of the incredible opportunity that changing technology provides us to leverage the strength of our great brands,” Iger said.

Disney’s stock has fallen by 3.80% to $106.98 in after-hours trading.

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