On The Future Of Disney And ESPN

My latest article on Seeking Alpha focus on Disney and the future of the business. The full article is available on their website here.


On The Future Of Disney And ESPN

By Brian Langis

Summary

  • Focus on the long-term, 5 to 10 years.
  • Disney’s approach to streaming ESPN and Disney+ could determine the future of television.
  • Disney could be viewed as a service company in the future – that would benefit the stock.
  • The Media segment is Disney’s biggest segment and is under pressure. It will take ESPN+ to replace the losses.
  • In 2006-2007, analysts and shareholders hated Netflix for investing in the streaming platform instead of focusing on DVD rental.

The following article are some thoughts and insights on the future of Disney and ESPN. If you are looking for a DCF model of the next ten years this is not the right article.

I love Disney (DIS). I have two small children and Disney helps with me with parenting. I’m also a Disney shareholder, so is my daughter when I gave her one share at her first Christmas. As a shareholder I do need to follow the company for myself and my family.

Part of the investment thesis is based on Disney’s capacity to transform itself from a traditional TV/Media to digital streaming with ESPN+ and Disney+ (I don’t think Disney has released the name for their streaming platform, so I’m calling it Disney+). A Disney+ app set to debut in 2019 will offer on-demand viewing of Marvel, Pixar, Lucasfilm and other television and movie content. Yesterday Disney released their Q2 results. Below is the revenues break-down by division Q2:

  • Media and networks: $6.14 billion vs. $6.09 billion expected
    Parks and resorts: $4.88 billion vs. $4.69 billion expected
    Studio: $2.45 billion vs. $2.19 billion expected
    Consumer and interactive: $1.08 billion vs. $1.14 billion expected

The Media segment is Disney’s biggest segment and is under pressure (-6% net income last quarter) however the Parks and Studio division is helping absorb the subscriber loss bleeding at ESPN. “The Worldwide Leader” in sports is going through an identity crisis (what’s going on with SportsCenter?), is losing rapidly losing subscribers (peak ~100m vs ~80m today) due to cable cutting , and is hit by escalating rising cost attached to their massive sports-right contracts. To help the transition to digital and to “save” ESPN, the Company unveiled a paid streaming service as ESPN looks to combat mounting subscriber losses that have weighted on the bottom line of Disney. Disney has big plans to sell its stuff directly to consumers (Direct-To-Consumer or D2C). ESPN+ is a first step. D2C bypass intermediaries and allows Disney to control the user experience.

Read the here.

 

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