Give Disney (NYSE:DIS) credit for this much: it can see the writing on the wall. Better yet, it can not only see it, but it can move accordingly. The last time we heard about Disney a little over a month ago, we were expecting it to turn positive for the year. The latest news suggests that it may not be there yet, but it's well on its way to turning things around.
Circling the Wagons and Focusing on Remote
The biggest problem that Disney had going into all this is that most of Disney's product lines depend on having a lot of people together in one place. That huge economy of scale gave it an enormous advantage in the market, allowing it to bring in crowds of paying customers to just about all of its ventures. From the theme parks to the movie theaters, “pack 'em in” was the order of the day.
Then came the pandemic.
It was hard to imagine Disney being able to survive long under conditions where “pack 'em in” was not only no longer desirable to customers, but outright illegal in some places. That left Disney in a very bad position, and the company has been struggling ever since. However, a recent reorganization effort is making it clear that Disney's plans have changed, its focus has shifted, and it's working on no long being largely dependent on crowds to survive.
The Nuts and Bolts of a Major New Effort
The reorg is a complex animal, and since its purpose is basically pandemic-proofing Disney, the ultimate results are wide-reaching and may not be clear for some time. Still, Disney's bold new plan will fundamentally reshape the company, and hopefully make it better able to stand off issues like the pandemic.
The biggest change comes to the company's media arm, which has now been consolidated into one single effort that focuses on content distribution, monetizing that content—particularly via advertising sales—and everything that has to do with Disney+.
In fact, the company is putting such effort—and resources—behind developing content for Disney+ that there's talk of suspending the company's dividend to infuse extra cash into the process. Further word suggests that the company is now setting up its studio operations—such as they are with the ongoing California coronavirus restrictions—with the expectation of theatrical releases pulled. From now on, everything the company rolls out, whether it's the latest lighthearted Pixar romp or the latest action-packed roller-coaster ride from the Marvel Cinematic Universe will go where the best chance of success is. For the foreseeable future, the likely answer to that question will be “streaming.”
As CEO Bob Chapek noted, the consumer is making the decisions at Disney right now, and more and more, consumers are voting to stay out of theaters, even where they're actually open and available as options.
Can Disney Pull Off the Pivot?
Certainly, the move to measure a film's likely success by its profit potential is a good move, and one that every investor would want to hear. Businesses, as noted by the classic business novel “The Goal”, are in business to make money. Disney's consumer-focused approach is a smart one that should help keep the bottom line from cratering altogether.
Reaction to this issue, however, is a bit mixed. There's always value in the bottom line, and some say that this puts Disney+ on a much closer track to Netflix (NASDAQ:NFLX). Right now, a share of Disney is a lot cheaper than a share of Netflix, meaning there's a buying opportunity afoot if Disney+ wants to be the next Netflix. However, the company's ability to generate revenues from streaming is a bit lacking; the average monthly fee for a Disney+ subscriber is $4.62, which means around $266 million a month in revenue. Disney used to have single films that generated more than that. Then again, Netflix doesn't have a theme park at all.
With our research showing analysts pretty heavily in Disney's corner—18 “buy” ratings against nine “hold” and one “sell” is a reasonably clear consensus to pick up some shares—the impact of such moves may not be as dire as some expect. Disney isn't afraid to make the big moves...but only time will tell if these have the desired effect. Still, it's hard to bet against one of the biggest cultural bulwarks in the United States, so expressing a little faith and trust in the face of all that pixie dust may be a good plan after all.
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