Business Strategy and Outlook| Neil Macker, CFA |
We believe Disney is successfully transforming its business to deal with the ongoing evolution of the media industry.
The firm’s direct-to-consumer efforts, Disney+, Hotstar, Hulu, and ESPN+ are taking over as the drivers of long-term growth as the firm transitions to a streaming future. The streaming will benefit from the new content being created at Disney and Fox television and film studios as well as the deep libraries at the studios. We expect that Disney+ will continue to leverage this content to create a large, valuable subscriber base.
Disney's media networks segment includes ESPN, ABC, and the acquired Fox cable entertainment channels like FX. ESPN remains the dominant domestic sports television network due to its large array of sports programming. It profits from the highest affiliate fees per subscriber of any cable channel and generates revenue from advertisers interested in reaching adult males ages 18-49, a key demographic. The Disney Channel’s programming consists of internally generated hits with Disney's vast library of feature films and animated characters. We expect the unique content on ESPN and Disney Channel will provide the firm with a softer landing than its peers as viewing transfers to an over-the-top world over the next decade.
Disney's other components rely on the world-class Disney brand, sought after by children and trusted by parents. Over the past decade, Disney has demonstrated its ability to monetize its characters and franchises across multiple platforms--movies, home video, merchandising, theme parks, and even musicals. This stable of animated franchises will continue to grow as more popular movies get released by the animated studio and Pixar. Disney has arranged the Marvel universe to create a series of interconnected films and product tie-ins. With the acquisition of Lucasfilm, the firm has positioned the Star Wars franchise in the same manner. Disney's theme parks and resorts are almost impossible to replicate, especially considering the tie-ins with its franchises and other business lines. We expect the parks to rebound after capacity limits are lifted as families will still view the parks as a prime vacation destination.