Shares of Netflix dropped as much as 5% in after-hours trading Tuesday, after Disney announced it will end its first-run movie-output deal with the streaming giant starting with 2019 releases.
Netflix did not respond to a request for comment on Disney’s announcement. Disney said it plans to introduce its own direct-to-consumer Disney-branded subscription VOD service in 2019; it also is looking to bow an ESPN over-the-top streaming service early 2018.
Netflix’s stock closed at $178.36 on Tuesday, down 1.6% for the day. Following the Disney news, it was trading down another 3% as of 5:30 p.m. ET, at $173 per share. Netflix shares hit record highs last month after it topped Wall Street subscriber growth expectations for the second quarter of 2017.
Netflix and Disney inked the licensing pact for the pay-TV window in 2012, under which Netflix got U.S. streaming rights to the Mouse House’s films starting with 2016 releases. Netflix has had a similar “pay one” agreement for Disney titles in Canada starting with 2015 releases.
The impact will be felt on Netflix in the U.S. with the loss of staples from Disney’s 2019 theatrical slate, including “Frozen 2,” “Toy Story 4” and a live-action “The Lion King” from the Disney and Pixar lines. Still to be determined is whether Disney titles from the Marvel and Lucasfilm lines will remain on Netflix or get packaged in a Disney-branded OTT play.
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“We have had discussion internally about how best to bring them to consumers,” Disney CEO Bob Iger said on a conference call with analysts and reporters Tuesday after reporting earnings. “It’s possible we can license to a pay service like Netflix but it’s premature to say what we can do.”
Just a few months ago, Wall Street was abuzz with speculation that Disney may move to buy Netflix. Instead, Disney has acquired majority control of the Major League Baseball-founded BAMTech streaming-video company — and will use that to launch its own Netflix-style subscription video services.
Iger made clear there’s no larger disagreement between Disney and Netflix, which will continue to have a range of deals in place for other content. “There’s no change from our side,” he said. “We’ve had a great relationship with them.”