The $9.99/month Disney+ streaming service launched in New Zealand today and the Herald was quick to sign up to see there would be any of the launch-day glitches that marred its US debut earlier this month.
There weren't, and I can also confirm that its marquee series - The Mandalorian, based in the Star Wars universe - is rip-roaring entertainment.
It's not so fun for Sky, which has to surrender its two Disney channels by the end of this month (they will be replaced by a BBC children's channel and a still-in-the-works family channel).
The bear take on Sky TV is that Disney+ is just the start of a sustained trend that will see Hollywood studios and other content makers seek to reach their audiences directly. Apple TV+ launched here on November 2. May next year will see the launch of HBO Max, and other direct-to-the-consumer apps will follow.
And for traditional pay TV providers - or even from Netflix's point-of-view - they're scary-cheap. In the US, for example, Disney is selling a bundle of three services: Disney+ (including content from its Pixar, Fox, Marvel, National Geographic and Star Wars brands), ESPN+ and Hulu for just US$12.99 per month (Disney owns 90 per cent of ESPN and 50 per cent of Netflix competitor Hulu).
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And Sky is of course already under attack on its sports flank from Spark - which has seized some sports and made it a lot more expensive to bid for others.
Where to from here? Yesterday, Sky released its first guidance for 2020.
The pay-TV provider said its 2020 operating earnings would fall to between $170m and $190m - well below the analyst consensus of $215m, which was itself behind Sky's 2019 ebitda of $230m and 2018's $285m.
And it forecast 2020 revenue of between $750m and $770m against 2019's $795m and 2018's $839m.
Sky's shares, which briefly perked up after the pay-TV provider confirmed its new Sanzaar deal, sunk 6.3 per cent to 89c after the guidance was released. Can it pull out of its downward cycle? Sky pitches itself as a company in transition. Retaining Sanzaar rights through to 2026 has given it breathing space to further develop its new streaming services, and gear-up Rugby Pass (the global streaming player that holds the prospect of millions worldwide paying Sky for test and Super Rugby, even if the US$40m acquisition only has a modest 20,000 or so paying subscribers today).
Hoped Disney+ would be added to Vodafone TV, given Disney's push for broadband partnerships across the Tasman. But a Vodafone NZ spokeswoman says, "There are no immediate plans to introduce Disney+ to Vodafone TV [but] we will continue to consider it for future updates"— Chris Keall (@ChrisKeall) November 18, 2019
Forsyth Barr has lost the faith. After Sky's guidance, the wealth manager cut its rating to "underperform" and its 12-month target price to 80c.
The media environment, including escalating competition in streaming from global-scale competitors, has become just too tough to give Sky the benefit of the doubt, ForBarr analyst Matt Henry said in a new research note.
Henry sees Sky staying in profit, but with it shrinking to just $27m by 2021 and no sign of the suspended dividend returning through to the end of 2022 (the limit of his forecast).
With Sky's market cap ($384m at yesterday's close) beaten down so low, some still see hope, however.
Just checking that Disney+ is streaming okay on its NZ launch day pic.twitter.com/5LOY1mqSF2— Chris Keall (@ChrisKeall) November 18, 2019
UBS had a buy rating and a $1.55 rating ahead of yesterday's guidance update. In a note this morning, analyst Phil Campbell said the earnings and revenue fall were to be expected, given Sky was in a transitional phase. He also noted there are now more shares on issue, given Sky paid for its new Sanzaar deal in part with stock (giving NZ Rugby a 5 per cent holding). Campbell maintained his buy rating, but trimmed his 12-month target to $1.40.
'Investors decided to shoot first'
The biggest Sky bull has been Fat Prophets' Greg Smith.
On August 22, as Sky reported its 2019 full-year result and axed its dividend for the foreseeable future, its shares sunk more than 7 per cent to $1.13.
Smith said investors were over-reacting. Doom and gloom was already priced into the stock. He saw the potential for it to bounce back to $2.
This morning, Smith stuck by his prediction.
"I still see the potential for $2, possibly even towards late 2020 as streaming gains kick in," Smith told the Herald.
"Guidance yesterday was also about recalibrating a very broad range of earnings forecasts that were out there, and in part due to accounting standard impacts.
"Investors decided to 'shoot first' but with the shares around 90 cents there is an air of investor capitulation, and with an ebitda multiple of 2.4x at the low end of revised guidance. The February [half-year] results will be a key acid test for the company's turnaround strategy."
"The Sanzaar retention seems to have been unfairly discounted by the markets," Smith added.
"The domestic cricket loss was an unexpected blow, but on balance outweighed substantially by other wins, albeit content costs are rising. RugbyPass can also be a big value driver in my view longer-term through an offshore footprint."
Sky shares were down 1c to 88c in mid-morning trading. The stock is down 66 per cent for the year.
How to watch Disney
Disney+ costs $9.99/month or $99/year. Its app is available for Apple or Android smartphones and tablets, Apple TV, Xbox, PlayStation and LG, Samsung and Sony smart TVs. It also supports Google Chromecast and ApplePlay.
More platform details here.