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Disney Removes Content from Streaming Services, Faces $1.5 Billion Impairment Charge

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BNN Correspondents
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Traders work at the post where Walt Disney Co. stock is traded on the floor of the New York Stock Exchange (NYSE)
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Image Credit: Reuters

Disney has taken the decision to remove specific content from its direct-to-consumer (DTC) services, resulting in a $1.5 billion impairment charge. This move has raised questions about the reasons behind the content removal and the potential impact on Disney's earnings and subscriber base. Disney's DTC services, including Disney+, Hulu, ESPN+, and Star+, have gained significant popularity in the streaming market. Let's delve into the details and explore the implications of Disney's strategic decision.

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What are DTC services?

DTC services, also known as direct-to-consumer services, are streaming platforms that enable consumers to access content directly from the producers, bypassing traditional intermediaries like cable or satellite providers. Disney's DTC services encompass a wide range of offerings, from movies and TV shows to sports and news. The company has been actively investing in its DTC business, bolstering its content creation capabilities and making key executive appointments.

The Reason Behind Content Removal

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While Disney has not disclosed the specific details regarding the content removal, industry analysts have put forward various possibilities. Licensing issues, content quality concerns, and regulatory compliance are all potential factors contributing to Disney's decision.

Licensing Issues

Licensing complications arise when Disney lacks streaming rights for certain content in specific markets or must share revenue with other entities. Negotiating licensing agreements can be complex, especially when dealing with international markets.

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Content Quality

Disney is known for its commitment to delivering high-quality content that aligns with its brand values. Removing content that fails to meet Disney's standards or expectations may be a strategic move to enhance the overall quality of its offerings.

Regulatory Compliance

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Operating in a global streaming market necessitates compliance with diverse laws and regulations. Content ratings, censorship guidelines, and taxation requirements can vary across countries, posing challenges for companies like Disney.

Impact on Financials

The content removal from Disney's DTC services will result in a $1.5 billion impairment charge, which will be reflected in the company's fiscal third-quarter financial statements. An impairment charge is an accounting practice that reduces the value of an asset on the balance sheet when it is deemed to be worth less than its carrying amount.

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The impairment charge will have an impact on Disney's earnings per share (EPS), a key measure of profitability. Analysts predict that Disney's EPS for the third quarter will be around $0.76. However, the impairment charge could decrease this figure by approximately $0.33.

It's important to note that the impairment charge represents a one-time expense and does not reflect the ongoing performance of Disney's DTC business. Despite the removal of certain content, Disney has been experiencing significant growth in its subscriber base, with a total of 179 million subscriptions across Disney+, ESPN+, and Hulu as of the end of fiscal 2021. The company has ambitious plans to expand Disney+ to over 160 countries by fiscal 2023.

Disney's DTC Strategy

Disney's DTC business plays a pivotal role in the company's global streaming market strategy. The streaming industry is projected to reach a value of $223.3 billion by 2028, and Disney aims to compete robustly in this arena. The removal of specific content from its DTC services suggests that Disney may be making room for more original and exclusive content. By offering unique content that attracts and retains subscribers, Disney anticipates generating higher revenue and margins.

Disney DTCservices ContentRemoval StreamingMarket DisneyPlus
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