DisneyDIS is adopting a new financial reporting structure for its first-quarter fiscal 2019 results as stated at the time of its business reorganization last year. To adapt to the dynamic media landscape, the company had reorganized its three reporting segments into four.
The new segments include Media Networks, Studio Entertainment, Parks, Experiences & Consumer Products and Direct-to-Consumer & International (DTCI).
The Media Networks and Studio Entertainment segments remained unchanged except that Disney's International Channels, "management of global advertising sales/technology and management of program sales" became part of DTCI segment.
Additionally, global consumer products business was merged with Disney's Parks and Resorts under Parks, Experiences & Consumer Products. The DTCI segment includes ESPN+, Hulu and upcoming Disney+ and is responsible for distributing Disney's content to users worldwide.
Disney is making significant investments in both content and technology to create a niche for its direct-to-consumer (DTC) platforms.
The Walt Disney Company Revenue (TTM)
Let's Take a Closer Look at Disney's DTC Platforms
ESPN+, which was launched in April 2018, surpassed one million subscribers in the first five months primarily on the back of a strong content lineup and targeted demographic advantage.
Additionally, Disney's CEO Robert A. Iger believes that the upcoming service Disney+ will attract users by leveraging the company's existing IP along with investments in original content . Moreover, the company's acquisition of Twenty-First Century Fox will further strengthen its film and TV slate.
Hulu added 8 million U.S. subscribers in 2018, primarily on content strength, bringing the total count to 25 million. Notably, Disney, which currently holds 30% stake in Hulu is entitled to another 30% stake after acquiring Fox, while Comcast CMCSA owns 30% and AT & T owns the other 10%.
High Investments and Stiff Competition to Continue
Increasing investments are likely to hurt Disney's bottom line in the near term. Notably, management guided that investments in ESPN+ will have a negative impact of $100 million on operating income in first-quarter fiscal 2019. Moreover, losses from Hulu and its DTC platforms are likely to persist. Disney lost more than $1 billion from its streaming segments in 2018, with about $580 million loss from Hulu.
Further, Disney will face competition not only from dominant player like Netflix NFLX but also from free streaming services. Both Amazon and Sinclair Broadcast SBGI recently launched a free ad-supported service hoping to quickly attract users and advertisers. Moreover, Comcast owned NBC Universal is set to launch a free ad-supported service by early 2020.
Nevertheless, we believe that Disney's franchises and its vast library, which are already popular worldwide, may give it an edge and help it win subscribers from its peers.
Disney currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
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