), an online movie rental company recently announced a deal with
Disney to stream re-runs of episodes from Disney's (
) ABC network and cable channels like Disney Channel and ABC
Family. While it strengthens Netflix's streaming offering, it opens
up another way to monetize older content for Disney.
Disney traditionally competes with media conglomerates like CBS
), News Corp (
) and Time Warner (
) in the broadcasting and cable networks businesses.
Our price estimate for Disney stands at $38.38
, roughly in line with market value. We estimate that Disney
generates roughly 22% of its stock value from ABC broadcasting, ABC
Family, and the Disney Channel.
With the rise in popularity of digital platforms like Netflix,
studios are seeking additional ways to monetize their content.
Netflix has shown that there is great consumer interest in older TV
content and is now extending deals with studios to capture this
demand. Prior to this, Netflix signed one of its biggest deals ever
to stream content from Epix, a TV channel jointly owned by Viacom
(VIA), MGM and Lionsgate. Below we discuss how much incremental
value such deals can add to Disney, as well as potential limiting
$2+ Billion Value Added if Deal Extends
The deal is expected to earn Disney anywhere between $150
million and $200 million during its 1-year period. If we assume
that Disney is able to renew its deal with Netflix each year, we
are looking at revenues of close to $175 million annually (taking a
mid-point of estimated revenues). Disney's licensing deal with
Netflix will bring incremental revenues without significant
associated costs since the company is going to monetize the content
it already owns. Thus, annual cash profits of close to $175 million
can add close to $2.3 billion of value to Disney, which amounts to
a little over 3% of our current estimate.
How might this impact Disney's stock value? The deal can
ABC network licensing revenue growth
as well as implied fee per subscriber for
and ABC Family.
Modify the chart below to see how faster growth in ABC
network licensing revenues might impact Disney's stock
Disney's deal with Netflix values re-runs well below the price
range that TV networks typically pay for such content licensing.
The deal also increases competition for the TV networks. Despite
the upside from the Netflix deal, we note that TV networks could
reduce the amount that they are willing to pay for re-runs of
broadcast shows, creating a potential headwind to Disney's
licensing revenue growth.
You can see
the complete $38.38 Trefis price estimate for
Disney's stock here