Morningstar | Disney's Near-Term Focus Centered on Direct-to-Consumer and Fox
While Walt Disney is a media conglomerate, we view the company as two distinct yet complementary businesses: media networks, which include ESPN and ABC, and Disney-branded businesses, including parks, filmed entertainment, and consumer products.The crown jewel of Disney's media networks segment is ESPN. It dominates domestic sports television with its 24-hour programming on ESPN, ESPN2, and its growing sister networks. ESPN has exclusive rights with NFL and college football, the premier sports programming rights in the United States. 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 advertising demographic that watches less scripted television than other groups. This dual income stream is a significant advantage not shared by the broadcast networks, which rely primarily on ad revenue. The Disney Channel also benefits from attractive economics, as its 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 a 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. The stable of animated franchises will continue to grow as more popular movies get released by the animated studio and Pixar, which has already generated hits such as Toy Story, Cars, and most recently Frozen. Similar to the animated franchises, Disney arranged the Marvel universe to create a series of interconnected films and product tie-ins. With the acquisition of Lucasfilm, Disney appears to be positioning 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 other business lines.Walt Disney is an entertainment company. The company's segments are: Media Networks, which includes domestic cable networks, broadcast television network and domestic television stations, and television production and distribution; Parks, Experiences and Products, which includes theme parks and resorts, and consumer products operations; Studio Entertainment, which includes motion picture production and distribution, music production and distribution, and post-production services; and Direct-to-Consumer and International, which includes international television networks and channels, direct-to-consumer streaming services, and other digital content distribution platforms and services.
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