Lower DVD Prices and Sales Have Little Impact on Disney’s Stock
Lower pricing of DVDs globally and declines in DVD sales could negatively affect Disney (NYSE:DIS), Time Warner (NYSE:TWX), News Corp (NASDAQ:NWS), CBS (NYSE:CBS) and Viacom (NYSE:VIA). We estimate, however, that the impact of these declines on Disney’s stock would be minimal since Disney Studios’ DVD business accounts for only around 6% of the company’s value.
Disney releases DVDs of its feature films about 4 to 6 months after the initial box office release. The DVD business makes up the bulk of the revenue share for Walt Disney studios, accounting for almost 75% of its revenues. We currently have a Trefis price estimate of around $37 for Disney’s stock, about 10% above the current market price of $34.
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In the past, Global Average Price per DVD has increased from around $19 in 2005 to $20 in 2009. The average of Trefis member forecasts for Global Average Price per DVD indicates an increase from $20 in 2010 to $21.50 by 2016, compared to the baseline Trefis estimate of an increase from $20 in 2010 to $23 by the end of the Trefis forecast period.
The member estimates imply a small downside to the Trefis price estimate for Disney’s stock. We expect increasing penetration of higher-priced Blu-ray discs to drive the average price of movie rentals (DVD or Blu-ray) up in the future years.
You can drag the forecast trend-line above to express your own view, and see the sensitivity of Disney’s stock to Global Average Price per DVD.
In the past, DVDs Sold per DVD Household has decreased from 14 in 2003 to 7 in 2009. The average of Trefis member forecasts for DVDs Sold per DVD Household indicate a decrease from 6.9 in 2010 to 6.6 by 2016, compared to the flat baseline Trefis estimate of 7 over the Trefis forecast period.
The member estimates imply a small downside to the Trefis price estimate for Disney’s stock. Consumers are shifting to cheaper forms of entertainment such as online games and Internet VOD, making the recovery process even slower.
Disagree? You can drag the forecast trend-line above to express your own view, and see the sensitivity of Disney’s stock to DVDs Sold per DVD Household.