Weekly Media Notes: Disney’s Push For Star Wars Merchandise, Warner’s Efforts In China And CBS Cablevision Carriage Deal

+8.98%
Upside
114
Market
124
Trefis
DIS: Walt Disney logo
DIS
Walt Disney

Global equity markets gained some momentum after last week’s massive sell-off, owing to concerns over China’s macro-economic environment. Media stocks also bounced from their recent lows and most of them were up anywhere between 2% to 5%. The media industry at large remained active this week with Disney announcing the launch of Star Wars merchandise. In another note, Time Warner is eyeing China’s regional movie market to grow its box-office revenues. In yet another, CBS and Cablevision inked a carriage deal, which also includes CBS All Access and Showtime streaming service. On that note, we discuss below the developments related to these media companies over the last week or so.

Disney

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Disney (NYSE:DIS) plans to aggressively push Star Wars merchandise using popular platforms such as YouTube (Maker Studios) and ABC. Disney has seen stellar success with its Frozen merchandise over the last year and segment revenues were up in double-digits. However, the dynamics with Star Wars will differdespite its massive fan following, due to the target demographics. Frozen connected well with kids, but Star Wars is not that popular with the youngest generation who predate its blockbuster movies. Disney realizes this issue and is going to aggressively market the Star Wars merchandise. This is important for Disney as the merchandise will not only aid the consumer products revenue growth but also create more visibility and hype for the movie slated for release in December. Furthermore, Disney’s Interactive Media division will soon launch Star Wars on its video game Infinity. ((Disney Infinity Makes Room for All of ‘Star Wars,’ not Just ‘The Force Awakens’, The Wall Street Journal, Aug 27, 2015)) We believe the new Star Wars merchandise will help Disney’s consumer products segment clock double digit revenue growth in the near term (see – Disney To Push Star Wars Merchandise, So As To Drive Double Digit Segment Growth Near Term)

  • Trefis has a $119 price estimate for Disney’s shares, translating into a $200 billion market cap. This is slightly above the market price of around $100 seen over the week.
  • We estimate the company’s 2015 revenues to be around $52.60 billion for earnings per share of $5.00, in line with the consensus of $5.00, according to Reuters.

Time Warner

Time Warners (NYSE:TWX) studio, Warner Bros., is reportedly in talks with China Media Capital to set up a joint venture that will produce local language films for the Chinese market. [1] So far, the quantum of investment and the number of movies to be produced in this possible joint venture is not known. This comes in as no surprise given the demand for movies in China and the success of various Hollywood films in international markets. While China offers a great opportunity for Warner, we believe that it will have a limited impact on the company’s stock price due to the low value contribution of the box-office business. However, the studio will see steady revenue growth in the coming years, irrespective of the China deal. This growth will be led by sequels and movies around DC characters and Warner’s other popular franchises. (see – Time Warner’s Efforts In China Are of Little Value To Shareholders).

  • Trefis has a $98 price estimate for Time Warner’s shares, translating into a $80 billion market cap. This is around 35% ahead of the market price of around $73 seen over the week.
  • We estimate the company’s 2015 revenues to be around $29 billion for an earnings per share of $4.50, compared to a consensus of $4.70 according to Reuters.

CBS

CBS (NYSE:CBS) recently inked a multi-year carriage deal with Cablevision for CBS’ owned and operated TV stations, as well as its cable networks. Cablevision will also offer Showtime and CBS All Access streaming services to its customers. [2] These over-the-top services were earlier available on Apple and Roku platforms. Cablevision is the first pay-TV operator to offer CBS’ streaming services to its customers. Showtime’s streaming service is important for CBS and it has potential to generate $1 billion in annual revenues in the coming years (see – How Will Showtime’s Streaming Service Impact CBS’ Performance?).

  • Trefis has a $64 price estimate for CBS Corporation’s shares, translating into a $31 billion market cap. This is roughly 40% ahead of the market price of around $45 seen over the week.
  • We estimate the company’s 2015 revenues to be around $14 billion for earnings per share of $3.30, compared to consensus of $3.41, according to Reuters.

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Notes:
  1. Warner Bros. in Talks to Make Movies in China, The Wall Street Journal, Aug 25, 2015 []
  2. Cablevision will offer CBS’ video streaming services to broadband customers, Los Angles Times, Aug 25, 2015 []