Shareholders of Walt Disney Co. DIS are surely optimistic about the future. With the saga of the company’s acquisition of Twenty-First Century Fox finally over, management can now focus on implementing the long-term strategic plan. Shares of Disney have been essentially rangebound since it was first announced the company was attempting to buy Fox (and even before then). Now that the deal is done, the market will be looking to other catalytic events.
There are several reasons to be bullish on Disney’s future. First, the deal adds a number of impressive movie franchises to its already huge arsenal. Second, the company is set to release its own streaming service, which is expected to make a big splash in the sector. Third, the under-the-radar acquisition of Star India provides the company access to an enormous market.
A movie juggernaut
Disney’s focus has traditionally been on big-budget films that cater to younger audiences. This is, of course, not universally true, but if one looks at the biggest franchises owned by the entertainment giant - Star Wars, Marvel and, of course, the animated films it is most famous for - it is clear this company primarily serves younger demographics. By contrast, the acquired Fox studios have experience producing a wider range of films - both blockbusters and smaller-budget, more critically-acclaimed Oscar films. The merger has consolidated a large part of the movie industry and should continue to boost Disney’s prospects well into the future.
Streaming giant
In a previous article, we discussed a recent survey from Deloitte that showed that for the first time ever, more American households have streaming service subscriptions than cable TV subscriptions. Streaming services like Netflix NFLX, Hulu and Amazon AMZN Prime have been inexorably grinding down traditional pay-TV and are increasingly coming after movie theaters.
Disney, which already has a 60% stake in Hulu, is set to launch its own streaming service in late 2019, after having pulled its content from rival platforms. The explosion in the popularity of streaming platforms like Netflix has shown that consumers are willing to pay up to view quality original content. If there’s one thing that Disney has in spades, it’s quality original content.
Of course, a lot rests on the successful rollout of this new platform, and there is no guarantee there will be no hiccups. But if Disney is able to pull off all the technical aspects of launching this service, there is no telling how much of the market it could gobble up.
New markets
An underreported aspect of the merger was the acquisition of Star India, India’s largest broadcasting network, by Disney. With 720 million viewers a month, the network has enormous reach in a market that is just beginning to take off. Granted, those viewers need to be monetized more effectively, which is something Disney will need to work on long term. But the simple fact remains that Disney now owns the most popular network in the second-most populous country in the world. Not something to be sneezed at.
Disclosure: The author owns no stocks mentioned.
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