The Unanswered Questions that Remain for Disney’s New Restructuring
Disney is shaking up its business structure to expedite the media giant’s Direct-to-Consumer ambitions.
The new structure: Disney will be split into two revenue pies: the Disney Parks, Experiences and Products business and the new Disney Media & Entertainment Distribution group. The latter will be divided into three new divisions – Studios, General Entertainment and Sports.
“Going forward, it would seem that the dollar investment in content will be rapidly accelerating for streaming and materially decelerating for linear channels like ESPN, ABC, Disney Channel, and F/X.” - Michael Nathanson, Analyst at MoffettNathanson.
What this means: The company’s leadership on the creative side of the business will have expanded control over content decisions such as what films and shows will be produced and how/where it will be distributed, according to Rich Greenfield, Partner at LightShed.
“Disney has effectively separated the P&L function of its businesses from the content creation empowering the creatives to make the right decisions for the content they create…”
Potential ESPN DTC offering: While Disney has launched ESPN+, the company has so far refused to bring its ESPN flagship program Direct-to-Consumer. Due to accelerating cord-cutting, Guggenheim Securities says Disney recognizes it might have to give in if it wants to reach the 37% of U.S. broadband households that have dropped Pay-TV, according to S&P Global Market Intelligence data. Guggenheim analyst Michael Morris expects the service to cost about $15 a month and to include all of the content available on ESPN+. ESPN+ gives subscribers access to NHL, MLB, MLS, UFC, and more, but live NBA and NFL games have remained exclusive to ESPN.
While Guggenheim predicts ESPN to become DTC, Greenfield remains skeptical, saying “as much as investors want ESPN to fully transform into ESPN+, we have a hard time believing that Pitaro will shift major content to ESPN+, given that monetization is still far superior on ESPN.”
Investor Day: Circle your calendars. Management has set Invest Day for December 10th, which will give investors more insight into Disney’s strategy and restructuring. Until then, earnings and valuation will be an afterthought. MoffettNathanson points out several key questions that remain unanswered:
“Will ABC’s process of greenlighting new TV series look any different than today?”
“Will ESPN need to be more selective for future sports rights, or will sports rights become even more valuable to ESPN+?”
“How much incremental synergies will come as a result of this reorganization?”
