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Media analyst Doug Creutz detail Disney's move into internet content, ESPN worries

Thomas Franck

Cowen analyst Doug Creutz believes Disney's venture in over the top, or streaming, content is rife with uncertainty as the media giant tries to balance losses in ESPN with new distribution avenues.

The analyst offered his thoughts in an exclusive interview for CNBC Pro with Mike Santoli.

"ESPN is facing a pretty direct problem of being dropped out of a lot of bundles that consumers want to buy," Creutz explained. "They have to find a way to try to extract more value from the people who watch lots and lots and lots of sports because they know the value that they've been generating off people who don't watch a lot of sports is going to go away."

For Disney CEO Bob Iger , the answer appears to be over the top content (OTT), an option it announced as it pulled its movies and shows from Netflix last year. By offering content to subscribers directly over the internet, Disney may believe it can squeeze even more cash from diehard sports fans and isolate its renowned animated films.

"They're trying to build their own OTT Disney brand that could compete with Netflix and have a lot of content, have their super-high quality Disney content but then also when you add Fox's library and content production capabilities, it makes it a lot broader," added Creutz. But, he warned, the media giant may have to deal with problems that other rivals don't.

Companies like Amazon and Facebook may try to stake their claim over key sports rights over the next few years given their large audiences and cash hoards, a view supported by fellow tech analyst Daniel Ives, who also recently spoke to CNBC Pro.

Creutz said it would be surprising for Disney to try to develop a cheap, Netflix-like OTT offering, given the company's history of hefty profit margins.

"When you have a business that historically has made a lot of money and the company comes and says to you, 'well, we're going to start making a lot less money,' that's a lot harder for investors to swallow," warned the analyst. "They've [also] got really important relationships with traditional cable companies and satellite companies."

For his part, Creutz is a senior analyst at Cowen covering the media and entertainment sector. Prior to joining Cowen in 2003, he worked in finance in the managed care industry and received his MBA from the NYU Stern School of Business.

Shares of Disney were down more than 1 percent Tuesday, adding to a loss of more than 6 percent over the past 12 months.

"There's always this tension between the two in affiliate fee renegotiations and I think those have gradually gotten more contentious because people realize the pie's shrinking," he added. "If you move too aggressively and you do too much damage there, you can accelerate your problem."

See here for the full CNBC Pro report and the interview video.