Walt Disney and the remaking of global media
Walt disney will be reinvented by CEO Bob Iger’s $66 billion deal to acquire 21st Century Fox’s cable, film and television assets, just as it was transformed by the acquisitions of Pixar, Marvel and Lucasfilms. Star TV, Sky, Hulu.com, $2 billion in cost savings from Fox’s awful Hollywood movie studio and the world’s deepest content film library mean the Magic Kingdom will easily surpass Netflix as the world’s preeminent video streaming and direct to consumer digital producer. Is this template of the future remotely priced into Disney’s stock price at 103? Absolutely not. This makes the House of Mouse my favourite Dow canine, a megacap Goofy of Wall Street.
This year will be a hot year for Disney. The star producers of the Game of Thrones will create two Star Wars movies. Four Marvel movies are on the studio’s agenda. True, ESPN’s franchise value has eroded with subscriber cord cutting but the delta for 2018 has bottomed with the launch of the new web service and streaming product. At $4.99 a month, the ESPN Plus service is certain to be a global hit. Disney’s theme parks in Paris (which I dreaded as a daddy), Anaheim and Orlando, Hong Kong and Shanghai are on a roll and posted a 21 per cent rise in operating income.
Disney has the best-managed, most profitable movie studio in Hollywood (Fox was the worst, hence the cost synergies!) True, The Last Jedi missed its whisper number but Thor and Pixar’s Coco will mint box office gold.
Disney was positioned itself to be the world’s preeminent media/
$8B suggested to be spent by Disney on content
entertainment firm in a world where Netflix and Amazon dominate the digital video market. Note that Parks and Resorts, no less than the third of Disney revenues and 26 per cent of earnings, is an undervalued growth engine. Disney will now own video streaming firm (Hulu.com), the world’s highest growth television network (India’s Star TV), the most valuable film library in the world, and the biggest pay for view satellite broadcast network in Europe (Britain’s Sky). Iger suggested Disney will spend $7 billion on content at least $2 billion more than Amazon’s Prime video services. Disney’s new streaming service ESPN Plus will also offer subscribers NHL, major league baseball/soccer, rugby and cricket, though not NBA and NFL games. Mark my words: Disney will dominate the future of nextgen global television and the global market for e-sports.
It is ironic that investors have derated Disney since early 2015. Its ESPN woes meant the shares have gone nowhere in the past three years as the S&P 500 index has risen 25 per cent. Yet the Fox deal will give Disney some of the world’s hottest media brands, technologies and distribution platforms. As the fall in cable subscribers is offset by higher broadcast affiliate fees, I expect investors will focus more on Disney’s new global footprint, direct to consumer streaming video future and reinvented television network model. Hulu creates a revolutionary new tech platform for the global distribution of Disney’s programming.
Disney’s fourth-quarter $1.89 EPS on $15.35 billion in revenues beat the Street whisper number but were announced amid frenzied panic selling in global markets last week. My response? Yummy. Price is misaligned from value, a real time scenario that now exists in the media colossus of Burbank. It makes no sense to me that Disney trades at a valuation multiple of 15 times 2018 projected earnings at a time when its operating margins, growth drivers, cable networks, technological backbones and global markets will be transformed by the Fox deal and new product offering.
True, babies get thrown out of the bathwater when Mr Market has a nervous breakdown even if the baby in question is Luke Skywalker, Princess Leia (RIP, Carrie), Darth Vader, Mickey Mouse, Donald Duck, Hans Solo, Captain America, Sleeping Beauty, World of Avatar and Tomorrowland. I consider Mr Walt Disney one of the most wonderful human beings who ever lived for the sheer joy he brought to so many untold millions of people worldwide since the 1930s. What could be a nobler mission in life than to make the world’s children (and yes, adults) laugh? Now Iger, married to my Penn classmate, the model Willow Bay, is guardian of that priceless legacy. The Magic Kingdom will surely rock again!