Disney’s (DIS) bold new experiment could signal a shift in the way the entertainment giant operates -- at least according to one analyst.
Rosenblatt analyst Bernie McTernan believes the Labor weekend launch of the live-action Mulan on Disney+ could herald a new approach to the company’s launch of blockbuster material.
“Regardless of the ultimate number of transactions, we believe Disney's willingness to experiment with blockbuster content is another example of the company hitting the accelerator on streaming and should provide valuable insights into the potential for a disruptive distribution strategy they may not have pursued without the closures of theaters,” McTernan opined.
McTernan ponders the experimental launch’s 3 possible outcomes.
First of all, there’s the “PVOD (premium video on demand) Downside” to consider. The 5-star analyst estimates Disney would require “12M global PVOD transactions to breakeven on production costs and P&A (promotion and advertising) or ~20% of Disney+ subscribers as of 8/4.” Should Disney fail to meet this target, it is likely to conclude the strategy does not presently work, and as a result “the company would be unlikely to pursue PVOD with blockbuster content in the near-term.”
At the other end of the scale, there’s the “PVOD Upside.” Here, McTernan takes the successful live action remake of Aladdin as the benchmark. To beat Aladdin’s success, Disney would need roughly 33 million global transactions, implying 55% of Disney+ subscribers “unlock Mulan.” Should this outcome materialize, expect Disney to “aggressively experiment and pursue PVOD.” Furthermore, McTernan believes, that beating 33 million transactions “would be a significant milestone and potentially begin a historic shift in windowing.”
However, according to the analyst, the most likely scenario involves the middle ground. Disney records somewhere between 12 million to 33 million transactions, resulting in a recouping of costs yet not reaching the same profits a traditional theatrical release would generate. In this instance, the analyst concludes, “PVOD could merit greater experimentation from Disney (price point, P&A, types of content, hybrid approach like Universal-AMC, etc.) given the potential benefits on the Disney+ platform from higher engagement, which should lead to less churn and more gross adds.”
All in all, McTernan rates Disney shares a Buy along with a $145 price target. Investors could be pocketing a 9% gain, should McTernan’s thesis play out over the following months. (To watch McTernan’s track record, click here)
Among Wall Street analysts, opinions on Disney’s prospects are a mixed bag. The stock has a Moderate Buy consensus rating, based on 11 Buys, 9 Holds and 2 Sells. Going by the $132.39 average price target, the analysts expect shares to remain range bound for the foreseeable future. (See Walt Disney stock-price forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.