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Investment Overview for Disney (NYSE:DIS)
Disney is a well diversified media company and a small change in a single business driver does not hold much significance from value standpoint. However the drivers mentioned below are one of the most important and sensitive drivers for Disney's value.
ESPN & Sister Channels
ESPN Fee per Subscriber: We estimate this figure will increase from about $6.5 in 2015 to around $9.5 by the end of our forecast period in 2023. However, there could be downside of a little under 5% to our price estimate if this fee were to remain rangebound around $6 levels. This could happen if other sports networks compete effectively challenging ESPN's domination, bringing down the rising sports programming fee.
Cable Networks EBITDA Margin: We estimate this figure will decline 300 basis points to 39.5% by 2023 from 42.5% currently. However, there could be an downside of about 5% to our price estimate if the margins were to decline sharply towards 35%. This is possible given the rising programming costs and continued growth of digital platforms, which could result in continued investments in new programming. However, if Disney manages to rebound its margins to 47% - levels seen in 2013, it will result in an upside of over 5% to our price estimate for Disney. This is also possible if the company manages to control the programming costs with continued growth in monthly subscription fees.
For additional details, select a driver above or select a division from the interactive Trefis split for Disney at the top of the page.
Disney is a diversified media company and makes money through several businesses including cable networks, broadcasting network, theme parks & hotels, filmed entertainment and consumer products.
Its cable networks include channels such as ESPN, the Disney Channel, ABC Family & others. Disney's broadcasting arm, ABC Network, is one of the biggest broadcasting networks in the U.S. with a wide viewership.
Apart from TV networks, Disney boasts of several theme parks and resorts that attract millions of visitors every year. Furthermore, the company leverages its famous characters and brands to sell a variety of merchandise. Its filmed entertainment unit produces and distributes movies under Disney Studios brand.
In Q4 2015, Disney announced launch of DisneyLife, an over-the-top streaming service, which will include Disney’s’ movies, TV series, books and music offerings in a bundle priced at £9.99 per month in U.K. Disney plans to expand this service into other European markets, including France, Spain, Italy and Germany.
Over the past few months Disney has seen massive benefits from Star Wars. The latest movie in the series has grossed over $2 billion at the global box-office while its related merchandise sales has also picked up steam. However, there are renewed concerns over EPSN's growth trajectory, as the network has lost 7 million subscribers in the last two years. The impact of ESPN subscriber losses was visible on Disney's stock, which was down close to 10% in the last six months of 2015 despite the massive success of Star Wars
We believe ESPN and other cable channels are the most valuable divisions for the following reasons:
High Cable & Satellite Operator Fees
Cable and satellite companies such Comcast, Time Warner Cable and DirecTV pay Disney to include its cable channels, such as ESPN, Disney Channel, ABC Family and others in their programming packages. These operators pay a handsome amount of fee for ESPN (~$5.05 per subscriber per month) and for Disney Channel (~$0.94 per subscriber per month). The high amount of fee charged along with high ad pricing that results in healthy ad revenues make ESPN, and other cable networks most valuable to Disney.
High Penetration Of Cable Networks
Along with high fee charged, Disney's cable networks such as ESPN and Disney Channel have high penetration. ESPN and Disney Channel are present in approximately 95% of the U.S. pay-TV households.
Increasing Pay TV Competition
Increasing competition among pay TV providers, such as Comcast, Time Warner, DirecTV, AT&T, and Verizon is favorable for media companies including Disney, which can gain negotiating power in discussions regarding the pricing of subscription fees for their programming content.
Increasing Sports Programming Costs
ESPN increases its fee per subscriber every year, owing to rise in sports programming costs which has become a cause of worry for pay-TV service providers. Some of them are considering dropping ESPN from lower priced programming packages.
Declining DVDs And Expanding Streaming
As a result of growth of rental companies and online video, DVD sales have suffered declines in recent years causing worry to media companies such as Disney. However, these media companies are now pushing for rental window and licensing of their older content to recoup lost profits.
Online Licensing & Broadcast Advertising
With growth of online streaming companies such as Netflix that monetize primarily older content, licensing opportunities have expanded for media companies. However, given a decline in traditional television viewership, ratings are hit hard and this has resulted in lower advertising revenues for most of the media companies. So far, licensing revenue growth has not been able to completely offset the declines seen on advertising front. Having said that, broadcasting networks, such as FOX, CBS, NBC and ABC have been able to contain the advertising decline due to their exposure to sports programming, which garners very high viewership and better ad pricing.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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