Walt Disney Co will stop providing new movies to Netflix Inc starting in 2019 and launch its own streaming service as the world's biggest entertainment company tries to capture digital viewers who are dumping traditional television.
Disney's defection, announced on Tuesday alongside quarterly results showing continued pressure on sports network ESPN, is a calculated gamble that the company can generate more profit in the long run from its own subscription service rather than renting out its movies to services like Netflix.
In turn, Netflix and rivals such as Amazon.com Inc and Time Warner Inc's HBO are spending billions of dollars to buy and produce their own content and stream it straight to consumers.
Disney's entry into a crowded subscription streaming market and the cost of technology to support its own online services could weigh on earnings, Wall Street analysts said.
Disney stock fell 3.8 percent in after-hours trade. Shares of Netflix fell 3 percent.
The new Disney-branded streaming service will follow a similar offering from ESPN that will be available starting in 2018, the company said.
The streaming services will give Disney "much greater control over our own destiny in a rapidly changing market," Chief Executive Bob Iger told analysts on a conference call after earnings, describing the moves as an "entirely new growth strategy" for the company.
Disney has some experience with the direct-to-consumer model in Britain and could make more money in the long run from its own service, but the move could be "financially less advantageous" in the near term, said Pivotal Research Group analyst Brian Wieser.
The new ESPN service will feature about 10,000 live games and events per year from Major League Baseball, the National Hockey League, Major League Soccer and others, Disney said. It will not offer the marquee live sporting events shown on its cable channels.