Shares in Disney have risen nearly 5% in early trading on a day when broader markets are flat or down a fraction. Climbing past $131, the stock is at its highest point in nearly a month, though still below the $145 mark where it began 2020.
After the close of trading Monday, the media company unveiled a significant restructuring, creating a centralized distribution unit and clarifying the mission of creative teams to prioritize Disney+ and other streaming services. The move, which likely will entail some staff and cost reductions, is the latest attempt to lean into the one part of the company that is gaining top-line traction during COVID-19: direct-to-consumer operations like Disney+.
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“This reorganization is next-level in its scale, motivations and complexity of execution,” Benjamin Swinburne of Morgan Stanley wrote in a note to clients. “In effect, Disney has taken its entire content business — from its film and TV studios, its broadcast and cable networks, and its emerging streaming assets — and combined them into a single business. … If successful, this approach should significantly accelerate Disney’s transition from traditional media to DTC streaming.”
The implications of the changes are sweeping, Swinburne continued. “The probability Disney throws out legacy models increases substantially,” he wrote. The new structure “likely means MORE content to Disney+, Hulu and Star MORE quickly” as well as “historical film windows” being jettisoned in favor of bespoke release patterns, as with Hamilton and Mulan in recent months.
Michael Nathanson of MoffettNathanson, a longtime Disney bull, lowered his rating on the company’s shares to “neutral” earlier this year in light of the extensive damage inflicted by the coronavirus. In a blog post Tuesday reacting to the restructuring, he was measured in his praise but registered optimism about Disney’s future.
“We were impressed” that the company plainly stated its intention to favor streaming, Nathanson wrote. “Now with one integrated revenue center, Disney can better review and re-allocate how they source content.” That improved strategic approach could have benefits in terms of sports rights negotiations, he added, and enable the company to make cross-platform deals as league partners continue to have healthy appetites for streaming.
Speaking of sports, Michael Morris of Guggenheim Partners said his main takeaway from the restructuring was that it makes the unbundling of ESPN more likely.
“We view the reorganization as further strengthening Disney’s ability to control its distribution by making DTC streaming the primary mechanism for monetization (rather than cable network distribution) across all businesses,” Morris wrote in a note to clients.
A stand-alone ESPN offering would likely be priced at about $15 month, in the analyst’s view, nearly double the $8 a month the sports network commands from pay-TV providers for each customer getting ESPN. “The premium retail DTC price relative to the current estimated wholesale bundle price provides a rational relative value for existing (cable, satellite, telco) and potential new (digital aggregators like Apple or Amazon Prime) network distribution partners. Bundles from these services can be more appropriately positioned as a bargain relative to directly subscribing to multiple individual products.”
AMC Networks has launched its AMC+ offering at a “similarly high” $9 a month through Apple and Amazon, Morris noted.
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