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Disney is a well-diversified media company and a small change in a single business driver does not hold much significance from a value standpoint. However, the drivers mentioned below are one of the most important and sensitive drivers for Disney's value.
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. The company has also added a direct-to-consumer business to its portfolio of late.
Its cable networks include channels such as ESPN, the Disney Channel, ABC Family, and 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 the Disney Studios brand.
Disney has been witnessing a slowdown in its media networks division of late; for instance, ESPN has lost more than 11 million subscribers over the past six years due to the emergence of alternative viewing platforms. At the end of fiscal 2018, Disney reported the lowest number of ESPN subscribers in the last 10 years at 86 million. However, Disney is adapting to changing consumer habits and evolving technology shifts to seek new revenue streams.
We believe Cable Networks are the most valuable divisions for the following reasons:
Cable and satellite companies such as Comcast 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 fees for ESPN (~$7.50 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.
Along with the 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 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.
ESPN increases its fee per subscriber every year, owing to a rise in sports programming costs which have become a cause of worry for pay-TV service providers. Some of them are considering dropping ESPN from lower-priced programming packages.
As a result of the 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.
With the 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 the 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.
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