Walt Disney will launch a standalone ESPN sports streaming subscription next year and a separate video service for its films in 2019, neither of which will require a pay-television subscription.

The aggressive move into online video comes as the US entertainment company will pay $1.58bn to acquire majority ownership of BAMTech, a video technology group it first invested in last year.

It also marks the end of Disney’s relationship with Netflix: the company said it would end its distribution agreement with the internet video service for streaming of new releases in 2019, and Disney chief executive Bob Iger confirmed in an interview with CNBC that the company intends to pull all of its movies from Netflix.

“The media landscape is increasingly defined by direct relationships between content creators and consumers, and our control of BAMTech’s full array of innovative technology will give us the power to forge those connections, along with the flexibility to quickly adapt to shifts in the market,” said Mr Iger.

“This acquisition and the launch of our direct-to-consumer services mark an entirely new growth strategy for the company, one that takes advantage of the incredible opportunity that changing technology provides us to leverage the strength of our great brands.”

Netflix shares fell more than 3 per cent in after-hours trading following the announcement.

The moves came as Disney reported a 9 per cent drop in profit in its fiscal third quarter, due to higher programming costs and fewer subscribers at ESPN, its cable sports network, and lower box office receipts for its films.

Shares fell 2.8 per cent in after-hours trading in New York.

Revenue in the three months ending in June dipped slightly to $14.24bn from $14.28bn a year ago.

Net income dropped to $2.37bn, or $1.51 a share, from $2.6bn, or $1.59 a share.

Analysts expected earnings of $1.55 a share on revenue of $14.4bn, according to S&P Global Market Intelligence.

At Disney’s television networks, its largest division, revenue fell 1 per cent to $5.87bn and operating income sank 22 per cent to $1.84bn, dragged by the decline at ESPN.

Analysts have been closely watching ESPN as a proxy for the health of the broader television industry. ESPN generates most of Disney’s profits, but it has come under pressure as consumers drop pricey pay-TV subscriptions in favour of digital streaming services and “skinny bundles” of fewer channels delivered over the internet. In April, the company cut about 100 jobs at the network.

At the movie studio, revenue fell 16 per cent to $2.39bn, and operating income was down 17 per cent at $639m.

Disney’s theme parks and resorts were a bright spot, thanks to increases in Shanghai and Paris. Revenue rose 12 per cent to $4.89bn and operating income was up 18 per cent to $1.17bn.

Copyright The Financial Times Limited 2018. All rights reserved.

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