Weekly Media Notes: ESPN Subscriber Losses, Fox’s China Venture And More

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

Media stocks remained fairly active this week, with Disney’s ESPN seeing a 3% cut in its subscriber base for the fiscal year 2015. 21st Century Fox’s Fox International Productions inked a film co-production agreement with China’s Huace Media Group, while Dubai-based pay-TV company OSN inked an extension to its Warner Bros. content deal. Below we discuss the developments related to these media companies over the last week or so.

Disney

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Disney (NYSE:DIS) recently filed its annual report for fiscal 2015. The report stated that ESPN’s subscriber base declined to 92 million as compared to 95 million in the prior year and 99 million the year before that. [1] ESPN is Disney’s most important TV asset, and accounts for around 30% of Disney’s value, according to our estimates. The company did warn about modest subscriber losses in its August quarterly conference call, but the actual decline came in higher than expected. We’ll soon update our model to incorporate these numbers. The annual report was filed on Wednesday and the markets were closed on Thursday, but the company’s stock declined in trading on Friday morning.

  • Trefis has a $119 price estimate for Disney’s shares, translating into a $200 billion market cap. This is slightly above the market price.
  • We estimate the company’s 2015 revenues to be around $52.6 billion and earnings per share to be $5.01 for the calendar year 2015.

21st Century Fox

21st Century Fox (NYSE:DIS) has recently inked a film co-production agreement with China’s Huace Media Group. Fox International Productions is the local language production arm of 20th Century Fox. The companies will jointly develop movies primarily targeting Chinese audiences. [2] In the previous quarter, Time Warner struck a similar deal with China Media Capital. China remains an important market for studios, given the demand for movies in the region and the success of various Hollywood films in international markets. The massive demand for movies in China is evident from the region’s box-office grossing, which grew from a little under $1 billion in 2009 to around $5 billion in 2014. [3] Domestic Chinese films accounted for 55% of this total grossing in 2014, reflecting the demand for regional cinema, which studios including Fox and Warner are eyeing.

  • Trefis has a $37 price estimate for 21st Century Fox’s shares, translating into a $73 billion market cap. This is roughly 25% ahead of the market price of around $30 seen over the week.
  • We estimate the company’s 2015 revenues to be around $29 billion for earnings per share of $1.64 for the calendar year 2015.

Time Warner

Time Warners (NYSE:TWX) Warner Bros. studio recently inked an extension for its content deal with Dubai-based OSN group. The agreement is now extended until 2020 and will offer OSN subscribers exclusive access to Warner Bros.’ movie and television content in that market. In fact, some of the shows will premiere at the same time as in the U.S. [4] This deal is meaningful for Warner, as OSN serves a fast-growing MENA (Middle East and North Africa) market and has seen rapid pay-TV subscriber growth. OSN has a subscriber base of around 1.15 million in the region. [5]

  • Trefis has a $98 price estimate for Time Warner’s shares, translating into a $78 billion market cap. This is significantly ahead of the market price.
  • We estimate the company’s 2015 revenues to be around $29 billion for earnings per share of $4.52, compared to a consensus of $4.68 according to Reuters.

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Notes:
  1. Disney’s SEC Filings []
  2. Fox International Inks Production Deal With China’s Huace, Variety, Nov 16, 2015 []
  3. China’s box office revenues surge 36% in 2014, Los Angles Times, Jan 5, 2015 []
  4. Warner Bros.’ Press Release, Nov 16, 2015 []
  5. Pay TV outshines piracy in MENA, TBI Vision, March 9, 2015 []