Disney Encouraged to Sell Off ABC & ESPN as stock faces worst year since 1974

[AndyS2992]

So has streaming peaked?

I’d argue that if you go by subscriber numbers alone, there isn’t a lot of growth left. Also at what magic subscriber level does that translate into profitability?

Seems like people are looking for an unprofitable unicorn.

Wouldn't say peaked, but certainly over saturated. Since Disney+'s success, every studio wants a piece of that pie and have pulled their content from Netflix and made their own streaming service.

We have:
Netflix
Amazon Prime
Hulu
Disney+
Paramount+
Lionsgate+
Discovery+
ESPN+
AppleTV+
Apple TV+
AMC+
BET+
YouTube Premium
HBO Max

I could go on and on. It's way too much and yet more just keep popping up. Plus I wish they were more creative with their names.

 

[monothingie]

Has streaming peaked....maybe? Maybe not? If I had that answer, I'd be selling it to the highest bidder.

It's a strange dichotomy of Tech companies with money and no content versus Legacy Studios with content and no money. (Netflix excluded). Apple or Google could come in and snap anyone or part of these companies up in a second.

There's the subscription service route (D+, Netflix, etc.) and then there's the FAST (That's Free Ad-supported Streaming TV, FYI) service route (Pluto TV, Tubi, etc.) - maybe the latter wins out because it gives the closest "lean-back" experience like cable TV, i.e. pick a channel and watch as background noise, and the former becomes the streaming equivalent of an HBO or Showtime subscription in the cable days.

It's like Cable, just with extra steps.

I would not be surprised - no, I'd be shocked - if Disney isn't looking at some FAST channels. Imagine a "Disney Channel Rewind" FAST channel featuring blocks of That's So Raven and Hannah Montana and other shows of that era - or bring back the "Vault Disney" moniker for a channel featuring classic cartoons and movies.

Here's another take and more ideas: https://thestreamable.com/news/ten-fast-channels-disney-plus-should-consider-launching-in-2023

It could give a "free" tier to D+ or these could also be offered to other services, even the ones by tv manufactures like LG Channels or Samsung TV Plus.

Disney's greatest strength or weaken is that they do things their own way. I think Chapek was forced into offering the ad supported tier. His MO was always to push premium and expensive.

It's not that it's an unprofitable unicorn - right now, these companies just want money and are still trying to figure out where it is and how to get, since they won't just take the licensing money from Netflix anymore apparently. People abandoning cable means they are losing money on that front, dealing with churn on streaming services will cut into another revenue source, and then there's the movie industry outside mega-blockbusters still trying to figure out what it will be.

That said, Disney crossed the $4 billion mark at the global box office this year, so hold off on passing the hankies on that front.

But that seems the be the funny thing when people say, it's not profitable "yet". Even with Chapek manipulating the books, it still was catastrophically unprofitable. What changes in the coming years, especially when you are in the middle of the Hunger Games of Streaming?

 

[monothingie]

Wouldn't say peaked, but certainly over saturated. Since Disney+'s success, every studio wants a piece of that pie and have pulled their content from Netflix and made their own streaming service.

We have:
Netflix

Safe but dying.

Amazon Prime

Safe, but not because of Streaming.

Hulu

Future Uncertain - Comcast and merging with Peacock?

Disney+

Safe but money looser.

Paramount+

Meh?

Lionsgate+

Who?

Discovery+

Soon to be one with HBO Max? Rebranded?

AppleTV+

Safe, but only because it's Apple's current toy project until they buy someone else and merge it or forget about it and let it die a slow death.

AMC+
BET+

Do they even combined have more than 100 subscribers?

YouTube Premium

Google's plaything

HBO Max

David Zazlav's target for cuts.

 

[doctornick]

But that seems the be the funny thing when people say, it's not profitable "yet". Even with Chapek manipulating the books, it still was catastrophically unprofitable. What changes in the coming years, especially when you are in the middle of the Hunger Games of Streaming?

Higher prices, lower expenses once the roll out is completed internationally.

If you break down their "content" spending, Disney sent about $15-17 billion this year for streaming. You'll see quotes of $33B for Disney but that is for all content - streaming, linear TV and movie costs all together. The linear TV costs include some high rights fees for sports on ESPN. Not all of that ~$16B is for Disney+ (some is for Hulu and ESPN+) but let's for the sake of argument assume that it is all for content on D+.

Disney+ alone has over 160M subs worldwide. They make something like $4 per subscriber a month (the number is dragged down by a lot of subs in India who pay less than what we see in USA/Canada, Western Europe, etc.). So, right now they make about $7.6 billion a year in revenue from Disney+.

What they need is to get the revenue from subs to be higher which can be done by either increasing monthly cost or adding revenue from ads. Of course, they have started down this path with the ad tier and higher monthly cost this month. They went up about a third (and I think the expectation is for the ad tier to basically make as much revenue per sub as the ad free, such that the ads make up the difference in subscription cost). If the revenue per sub goes up by a third in the upcoming quarter and they can keep number of subscribers around the same, then they would generate a bit under $10B a year from Disney+.

With either smaller price jumps in both 2023 and 2024 or a larger price jump in 2024, I could see them potentially getting revenues to match the ~$16B they are spending on streaming content. I don't think its a huge stretch to believe they could reach profitability by the end of 2024 or early 2025 as they have predicted. Might not happen, but doesn't seem impossible.

The biggest issue is retention and reducing churn, but I think that will benefit the larger more established streamers as smaller ones will fall off or be consolidated. Less choices will likely lead to less churn as more people will want to keep at least some services most months to have stuff to watch.

Also, we've seen from Netflix that inertia definitely helps as they've been able to mostly retain subscription numbers even as they have raised prices in the past. Personally, I think churn is a bit overemphasized as many people don't really like the hassles of constantly canceling and re-subscribing to services. I'd actually be curious if people have numbers of how much churn there really is in the industry

 

[Vegas Disney Fan]

Personally, I won't enrich ESPN or the NFL by paying for their content. I'm OK with streaming game audio and watching the highlights later.

I added the ESPN+ / hulu bundle to D+ solely for the NHL.

I miss the old ESPN that showed live sports and replayed games all day long, now it’s hours of annoying sports talk shows and a couple actual games on a good day, a bad day may be 24 hours of annoying talk shows. The only time I consistently watch ESPN anymore is Saturday for college football.

 

[Elijah Abrams]

From a corporate conglomerate POV, you are not wrong. But the Disney name used to mean something, which is why Disney released adult content under MGM. Now Disney+ means what, exactly? All the content owned by the Walt Disney Company? When you used to watch the Disney channel, was it expected to be family friendly Disney entertainment? I think so. As the word "Disney" continues to lose meaning because the leaders of the Walt Disney Company never respected or agreed with what it stood for, it will ripple through all aspects of the business as I believe we are seeing. Ironic at 100 years we are seeing such a rapid acceleration of the brand degradation.

Actually, Disney used to make adult content under the Touchstone and Hollywood labels, and were distributed via the Buena Vista Pictures Distribution unit (along with its Walt Disney Studios Motion Pictures successor). They also had Miramax, but that was separate from the Disney Studios unit, unlike Touchstone and Hollywood.

The Walt Disney Company is not just "the Disney brand." It is many brands. Fox doesn't make Disney-branded content and pretty much the only content they make for Disney+ is National Geographic branded. Most of what Fox does is for Hulu, and if Disney wants their bundle in every household, they need content for adults.

ESPN is going down because people are exiting the cable bundle. If a sports fan can get ESPN for $40 rather than paying Comcast $150 for Expanded Basic (of which Disney gets what, $10? $15?), they're going to do it.


The price started too low, they launched without ads, and they spent way too much money producing crappy content. All three of those wrongs are in the process of being righted.


Are you under the impression that Disney releases adult content under the Disney brand? Because they don't.


Again, Disney+ is an umbrella service that includes many brands. It's not an exclusive service of the Disney brand.

View attachment 686770

But Disney+ doesn’t have a 20th Century hub unfortunately.

How big of a loss would Disney take if they attempted to sell Fox? The stock would really take a dip.

They can always revive Touchstone.

Doesn’t Disney have a bunch of content from the 60’s, 70’s, 80’s and 90’s that could go on Disney+ without Fox?

Of course! D+ could also add an ESPN and ABC hub.

 

[CaptainAmerica]

But Disney+ doesn’t have a 20th Century hub unfortunately.

That's basically what Hulu is.

 

[Vegas Disney Fan]

If only there were this singular provider that consumers could go to which could aggregate all these separate properties and deliver them to the consumer through a single portal maybe over a single cable.

The irony being one of the biggest complaints of cable is you can’t pick and choose what you want, they offer a couple packages that are set up in a way you have to get 200 channels you don’t want to get the dozen channels you do want.

People have asked for a la carte for years, now that it’s here it’s equally as frustrating because you need a dozen subscriptions to get the dozen channels you want.

Doomed either way.

 

[monothingie]

Higher prices, lower expenses once the roll out is completed internationally.

Where is the last of the untapped worldwide streaming market? Please don't say China.

If you break down their "content" spending, Disney sent about $15-17 billion this year for streaming. You'll see quotes of $33B for Disney but that is for all content - streaming, linear TV and movie costs all together. The linear TV costs include some high rights fees for sports on ESPN. Not all of that ~$16B is for Disney+ (some is for Hulu and ESPN+) but let's for the sake of argument assume that it is all for content on D+.

Disney+ alone has over 160M subs worldwide. They make something like $4 per subscriber a month (the number is dragged down by a lot of subs in India who pay less than what we see in USA/Canada, Western Europe, etc.). So, right now they make about $7.6 billion a year in revenue from Disney+.

The genius Wall Street analysts have finally figured out that subscriber numbers don't mean jack. The major problem is that dividing line between development costs within divisions in companies like TWDC has become intentionally blurred. Ask Bob Chapek how that created trouble for his longevity at the company.

Development costs are certainly not going down as the increased competition between the streaming giants continues to wear down the pool of subscribers. How much did Amazon spend and continues to spend on their LOTR disaster?

What they need is to get the revenue from subs to be higher which can be done by either increasing monthly cost or adding revenue from ads. Of course, they have started down this path with the ad tier and higher monthly cost this month. They went up about a third (and I think the expectation is for the ad tier to basically make as much revenue per sub as the ad free, such that the ads make up the difference in subscription cost). If the revenue per sub goes up by a third in the upcoming quarter and they can keep number of subscribers around the same, then they would generate a bit under $10B a year from Disney+.

With either smaller price jumps in both 2023 and 2024 or a larger price jump in 2024, I could see them potentially getting revenues to match the ~$16B they are spending on streaming content. I don't think its a huge stretch to believe they could reach profitability by the end of 2024 or early 2025 as they have predicted. Might not happen, but doesn't seem impossible.

Bob Iger to his credit knew that a key way for D+ to succeed was to keep the cost down to subscribers. Chapek took his MO of how he made the theme parks money printing presses and applied it to D+ in hopes that people will pay for "More Disney More Magic". We'll see.

The biggest issue is retention and reducing churn, but I think that will benefit the larger more established streamers as smaller ones will fall off or be consolidated. Less choices will likely lead to less churn as more people will want to keep at least some services most months to have stuff to watch.

Also, we've seen from Netflix that inertia definitely helps as they've been able to mostly retain subscription numbers even as they have raised prices in the past. Personally, I think churn is a bit overemphasized as many people don't really like the hassles of constantly canceling and re-subscribing to services. I'd actually be curious if people have numbers of how much churn there really is in the industry

The problem that most streamers have is that their target demo is fickle and offers no brand loyalty. With the easy ability to cancel or use a subsidized carrier subscription, subscribers go where the new "hot" programing is. You can see the progression of this with Disney Star Wars on D+ and it's decay from Mandolorian to Fett to Obi-Wan to Andor. Even the MCU properties either through over-saturation and/or declining quality have experienced this.

I would not pay directly for a subscription on D+ and Hulu or Apple + if it didn't come with my Verizon plan. Amazon Prime I use for shopping first, streaming last. Ditto Paramount + coupled with Walmart +.

 

[doctornick]

The irony being one of the biggest complaints of cable is you can’t pick and choose what you want, they offer a couple packages that are set up in a way you have to get 200 channels you don’t want to get the dozen channels you do want.

People have asked for a la carte for years, now that it’s here it’s equally as frustrating because you need a dozen subscriptions to get the dozen channels you want.

Doomed either way.

I never liked the idea of the downfall of cable because this was an obvious endpoint where you would have a ton of different things to choose from. sure, you save money, but you end up getting less overall content and have a much bigger hassle. I can understand how that is preferable to some but, even ignoring the annoying of adding and dropping services, I don't particularly like how you have to leave one streaming app to go to a different one to watch different things. It's nice to have cable/satellite and just go up and down on the channel (or type in a channel number) rather than switching stuff completely.

To your latter point, I think the idea idea that many people would prefer would be some sort of aggregator that you can pick the specific channels you would want and have them all in one place and pay a monthly cost based on the specifics of what you choose. I think that was most people's annoyance with cable, that they would like to drop the dozens of channels they didn't want and pay less for it the overall service but keeping the interface of having one location for all their TV.

 

[Sirwalterraleigh]

Sell it all to Apple and let’s take in that iPhone cash!

…the thought had occurred

Amazon should just buy Disney so they can take over their websites and apps since they know how to run stable ones

…the thought had occurred

 

[doctornick]

Where is the last of the untapped worldwide streaming market? Please don't say China.

If you are talking Disney+ specifically there's still some significant markets in the Middle East to South Asia (e.g. Iran, Pakistan), central Asia and (someday) Russia and Ukraine. All of Sub-Saharan Africa (except South Africa) as well, which is large population but won't be able to make as much per sub. And, yes, China sure if that ever becomes available to Western services.

But I don't even think Disney+ needs to roll out to many more countries to succeed. Sub numbers are already high enough in existing markets to make it work once they increase the monthly rates.

But the point I was making is that Disney+ has been actively spending a ton going into new markets and this was certainly true in 2022 where they rolled out in Eastern Europe, North Africa/Middle East and parts of Southeast Asia. As there are fewer and fewer roll outs in the future, that investment costs in new locations will be a lot less. That was a big part of why D+ was expected to lose money for years because of the startup costs before becoming a mature operation.

 

[Smiley/OCD]

The Walt Disney Company is not just "the Disney brand." It is many brands. Fox doesn't make Disney-branded content and pretty much the only content they make for Disney+ is National Geographic branded. Most of what Fox does is for Hulu, and if Disney wants their bundle in every household, they need content for adults.

This is another pitfall of some of the biggest corporations that have failed…there comes a time (Sears), where you just can’t be all things to all people. Maybe, just maybe, it’s time for Bob I to admit that some of his purchases were egocentric instead of “Disneycentric” and it’s time to follow Kenny Rogers and “know when to hold them and know when to fold ‘em” and for the near future, focus on the cash cows, the most profitable portions of the company and sell the other assets.

 

[_caleb]

This is another pitfall of some of the biggest corporations that have failed…there comes a time (Sears), where you just can’t be all things to all people. Maybe, just maybe, it’s time for Bob I to admit that some of his purchases were egocentric instead of “Disneycentric” and it’s time to follow Kenny Rogers and “know when to hold them and know when to fold ‘em” and for the near future, focus on the cash cows, thee we most profitable portions of the company and sell the other assets.

Iger knew Disney couldn't be "all things to all people," so he bought a bunch of stuff that will appeal to sub-audiences beyond Disney's typical audience.

 

[AndyS2992]

I never liked the idea of the downfall of cable because this was an obvious endpoint where you would have a ton of different things to choose from. sure, you save money, but you end up getting less overall content and have a much bigger hassle. I can understand how that is preferable to some but, even ignoring the annoying of adding and dropping services, I don't particularly like how you have to leave one streaming app to go to a different one to watch different things. It's nice to have cable/satellite and just go up and down on the channel (or type in a channel number) rather than switching stuff completely.

To your latter point, I think the idea idea that many people would prefer would be some sort of aggregator that you can pick the specific channels you would want and have them all in one place and pay a monthly cost based on the specifics of what you choose. I think that was most people's annoyance with cable, that they would like to drop the dozens of channels they didn't want and pay less for it the overall service but keeping the interface of having one location for all their TV.

There are apps that have everything in one place, Oneflix being one such app.

 

[Smiley/OCD]

Iger knew Disney couldn't be "all things to all people," so he bought a bunch of stuff that will appeal to sub-audiences beyond Disney's typical audience.

That’s exactly my argument…with the Fox purchase, they fell right into that rabbit hole, trying to be all things to all people. Maybe it’s time to stick to their core business model i.e. Disney and sell off the other portions.

 

[_caleb]

That’s exactly my argument…with the Fox purchase, they fell right into that rabbit hole, trying to be all things to all people. Maybe it’s time to stick to their core business model i.e. Disney and sell off the other portions.

Oh! You meant that Disney should not even TRY to appeal to "all people." Got it.

I still think the data they're gathering from streaming puts them in a perfect position to produce (or buy) content that will be highly-valued by different sub-audiences. The IP purchases were just to seed the platforms and build the subscriber base.

But I can see why you'd say, "just stick with your core audience." I just think that it's becoming clearer that the "core audience" 1) isn't one audience anymore and 2) isn't going to bring in the kind of money it used to.

 

[monothingie]

there's still some significant markets in the Middle East to South Asia (e.g. Iran, Pakistan), central Asia and (someday) Russia and Ukraine

They’ll find more D+ subscribers on the moon than in those locations.

 

[CaptainMickey]

This article makes an interesting argument why it's a smart move for Disney to keep ESPN long term:

Disney: Rejecting ESPN Spin-Off Is Right Move For Investors

ESPN provides an important source of cash flow for The Walt Disney Co., fueling its investment in streaming. Click here to read our analysis of the DIS stock.

seekingalpha.com

"firstly, it means the company can continue to use free cash flow from ESPN to fund growth avenues like streaming. Secondly, there are enormous growth prospects for sports broadcasting in the future if companies can leverage a global sports rights portfolio to drive advertising revenue."

One of the big reasons investors want Disney to spin off ESPN is so they can also attach and spin off a lot of Disney's debt that they acquired with the Fox deal.

 

[Mmoore29]

That’s exactly my argument…with the Fox purchase, they fell right into that rabbit hole, trying to be all things to all people. Maybe it’s time to stick to their core business model i.e. Disney and sell off the other portions.

If Disney sold off everything but the main studio, it couldn't compete truly with everyone else in the entertainment world. It needs scale to stay relevant, hence it needs more than the core Disney brand. That's what ABC, ESPN, Pixar, Lucasfilm, Marvel and Fox all provide, and they're all complementary assets. Parting with any one of them would be a short-term gain for a long-term loss. Especially because Disney's debt load is only half of what it was when the ABC deal went through in 1996. If the company could get through that with ABC being mismanaged for so long, Eisner making so many poor decisions at the end of his tenure, and the stock price stuck in the 20s by that point, it can easily get through this with more than one brand.

It's also so absurd that Avatar missing North American estimates by a measly $1 million is enough to call the results "tepid." Since when is $550 million worldwide in the first four days "tepid?"

It's absurd these dishonest vulture want to force Disney into a corner to shed core assets.

But if things get hairy, after buying out the rest of Hulu from Comcast in 2024, integrating it into Disney+ and the like, it could always sell it all to Netflix as an exit strategy. But that's only if all else fails. And I don't think it will.