Disney made waves when it announced Marvel and Star Wars films would be leaving Netflix and going to its propriety platform, but they have quite the hurdle to clear to make that decision a profitable one.
Disney announced previously that it was using its investment in BAM technologies to launch a new streaming platform for just Disney properties, and they recently made the decision to include Marvel and Star Wars films in that deal. It turns out pulling those projects from Netflix will have some heavy financial consequences.
A UBS analysis of Disney's current income from licensing paints a rather expensive picture (via Business Insider). UBS analyst Doug Mitchelson called the investment "both intriguing from a build the future growth of the company perspective, but also daunting in terms of the amount of lost third-party revenue."
That revenue is no small number. Just take Disney's current licensing deals with streaming platforms. Disney brings in around $500 million in that area alone. Their TV Licensing division brings in around $2 billion a year to put that number into context.
That leads to a significant number of users to make up the difference, with Mitchelson adding "Disney will need 32 million global subscribers just to break even at $9 per month."
That's a steep number, especially when you consider Netflix just surpassed 100 million users. They are clearly the leader of that pack at the moment, as HBO Now only pulls in 3.5 million users and CBS' collection of platforms like All Access and Showtime only amass 4 million users combined.
The full breakdown is located below.
The good news is that UBS thinks 32 million is doable, at least at some point down the line.0comments
"While [32 million subscribers] is not a stretch at all given our bullish expectations for the growth in the SVOD [streaming video] marketplace globally" UBS estimates. "It certainly creates greater EPS [earnings] uncertainty for the next several years during a period where investors are already nervous about secular trends for ESPN."
Combined with Disney's big upcoming ESPN investment, the company is going to be putting a great deal of money upfront to enter this market. It remains to be seen how long it will take to recoup that investment.