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14 November 2019

Iger eats his words as “robust” and “scalable” Disney+ crashes

Arguably the most credible competition to ever go up against Netflix arrived this week in North America with Disney+ and – as Faultline correctly predicted – the launch wasn’t all smooth sailing. Technical issues plagued the launch just two hours in as the floodgates opened to some 10 million sign ups.

“With Disney prematurely boasting how its forthcoming OTT video service is ready for anything the world can throw at it, you can almost guarantee that launch day will be a disaster,” wrote an opening gambit from an August article.

But as the company’s financial results filed late last week showed, the streaming service has a mountain to climb before it can be considered anything other than a cash guzzler.

Disney’s Direct-to-Consumer & International division saw operating loss balloon from $340 million to $740 million in the third quarter. Somehow though, Disney managed to cut a few corners and bring operating loss in below the charted damage of $900 million. So, already a better-than-expected start financially speaking, but what about the technical blips that stalled Disney+’s start?

Following a run of tests in the Netherlands, offering free access to a curated collection of content, Disney has boasted “technical soundness and reliability” of the platform, with user’s apparently praising the “elegance and ease of the interface” plus “quality of the overall experience.” Disney has not disclosed the exact size of the original Dutch sample size, although figures from local outlet Telecompaper say that 660,000 households (about 9% of Dutch homes) signed up for a full paid subscription after the free trial period. It goes without saying that this pales in comparison to the scalability task ahead.

Indeed, one participant on the company’s earnings call from UBS questioned whether Disney was prepared for scaling so quickly to some 20 million homes that become eligible to access Disney+ completely free via the partnership with Verizon. The deal includes new and existing 4G LTE and 5G Unlimited wireless subs, as well 5G Home Internet and Fios Home Internet subs.

CEO Bob Iger responded, “We’re confident that we’re ready for scale. The BAMTech platform has been tested under pretty interesting circumstances, including this past Saturday night when you have hundreds of thousands of people signing up for a pay-per-view event in a very, very short concentrated period of time.”

Disney has continually cited pay-per-view events like popular UFC bouts on the ESPN+ streaming service, earlier this year referencing how the BAMTech platform easily handled the volume of over 0.5 million people signing up during a single 24-hour period.

Iger has regularly talked up BAMTech’s ability to handle a substantial number of simultaneous transactions, citing instances before a major recent UFC fight in which BAMTech was taking in or making just under 15,000 transactions a minute – lauding how the stability of the platform is critical at these moments. In theory then, delivering an SVoD platform should be a walk in the park compared to handling hundreds of thousands of simultaneous live streams, but we now know – and warned – that Disney was left wheezing from the sheer volume of sign ups. Credit where credit is due though, as reportedly the Disney+ outages were not prolonged.

Telecompaper projects Disney+ to quickly usurp Videoland as the second-placed Dutch SVoD platform currently on 760,000 subscribers, while Netflix is out in front by some distance on 3.1 million subscribers as of Q3.

On the content side of the coin, Disney+ has launched initially with 10 original movies and series exclusive to the platform. Within a year, Disney+ will grow its original content roster to more than 45 titles, expanding to 60 original projects by 2024. Disney is also making the new service available as a bundle with ESPN+ and ad-supported Hulu for $12.99 a month.

Despite the hefty losses incurred at the hands of Disney+ investments, total revenue jumped impressively by 34% to $19.1 billion for the last quarter, largely thanks to studio entertainment and D2C contributions from Fox. Revenue was boosted across the board. Even Media Networks performed strongly with cable networks revenue up 20% to $4.2 billion and broadcasting rising 26% to $2.3 billion.

Operating incomes were down, however, by 1% for cable networks and 4% for broadcasting, contributing to total operating income for the Media Networks division of $1.8 billion, down 3%. One small revenue caveat however was the decline in domestic linear advertising revenue at ESPN, dropping 2%.