On this week's earnings call (transcript here), Disney CEO Bob Iger had some comments on the company's plans and strategies regarding new digital platforms, including OTT services such as Netflix.
First, in some good news for OTT and consumers, Iger is a fan of the new technologies saying, "I think it's very exciting because of what it provides us, what it provides the distributor and what it provides the consumer."
Then again, for consumers to get access to recent release Disney content via new platforms, they'll probably have to pay a subscriber fee to one of the incumbent multichannel providers. Disney's approach, it appears, is to make deals that increase revenue but also "protect and respect the basically multichannel or the channel distribution value that we see today." Earlier in the call he said "...we will basically push the window back or make access to the programming more difficult or later, except if a customer is authenticated as a subscriber." Iger did note that Disney continues active discussions with Netflix and others in the online/OTT space, but that such deals will be mainly for "library" content.
Will Disney be following FOX Networks' lead in requiring authentication for viewing shows online next day (vs. an eight day window)? Iger didn't specifically say, but in response to a question about the few authentication deals in place for ESPN he said "...with a pretty aggressive approach to authentication, reflected already in deals that we have made that have been long-term for ESPN, we can incentivize customers to either sign up with or stick with multichannel distributors."
Today's multichannel pay TV business is a big moneymaker for most cable network companies, so Disney's desire to support it is not surprising. More importantly, ESPN gives Disney a compelling reason to maintain the established order. At a conservative carriage fee of $4.50 per month per subscriber (the highest of all networks) and 99 million subscriber households, ESPN is providing Disney $5.3 billion in annual revenue from U.S. multichannel operators. And for Disney, the largest profit contributor is the cable networks. In FY2010, cable networks were 59% of Disney's operating income and ESPN U.S. carriage fees alone were likely slightly over 40% of cable network revenue.
Add to this the fact that Disney is collecting increasing retransmission fees from operators for its ABC broadcast network and ABC-owned and operated TV stations. Iger estimated Disney's retransmission revenue in FY2015 will reach $400-$500 million annually.
Billions at stake in current cable network fees plus growing broadcast retransmission revenues mean that authenticated OTT access for recent release TV and premium channel movie content is going to be the norm in coming years. In other words, gaining access to recent content for OTT providers may be costly or effectively not possible.
While a major frustration for new OTT entrants, they still can grow their viewership exactly the same way cable did in its early years: by offering consumers new content and services, mixed with both library or "rerun" content and current network content deemed "low value" but could benefit from being better presented to targeted audiences.
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