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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 in 2014 to over $8 by the end of our forecast period. However, there could be downside of a little under 5% to our price estimate if this fee were to remain stagnant around current levels. This could happen if other sports networks compete effectively challenging ESPN's domination, bringing down the rising sports programming fee.
ESPN's EBITDA Margin: We estimate this figure will increase slightly to 47% from 45% currently. However, there could be an upside of about 5% to our price estimate if this margin was to increase to over 52% by the end of our forecast period. This could happen if ESPN continues to raise its fee and manage its costs effectively such that the trend of increasing margin, as seen in recent years, continues.
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.
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.
Trefis Forecast Rationale for Morning & Daytime Viewing Households per Min
This is the average number of households watching per minute; and the average number of households tuned in at any minute during the morning and daytime programming hours.
Morning and Daytime includes all programming from 6am to 4:30pm in the evening.
The decline in viewership in the last 2 years is explained by a switch to cable channels, but we do not expect the decline to continue and expect an upward trend, going forward.
2009 witnessed a decline after an eventful 2008. The subsequent increase after should be more gradual than Primetime television, since it is less popular.
Trefis considered the following factors for its forecast:
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- 2008 saw substantial viewership across networks due to extensive coverage of the presidential elections and the financial crisis, which was at its peak in the second half of the year.
- Compared to 2008, 2009 was less significanct in terms of events and, consequently, we witnessed a decline in viewership in 2009.
- Since the programs shown during the rest of the day are comparatively less popular than primetime television, we dont expect the viewership to improve significantly in future.
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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