- Disney buying parts of 21st Century Fox is evidence of the company doubling down on streaming video.
- Its upcoming streaming services are just Disney doing what Disney does best.
- Watch the price of Disney move in real time on Markets Insider.
What is less clear, is whether the acquisition will be enough to save Disney from the ever-further reaching Netflix and the impact of video streaming services. For Steven Cahall at RBC Captial Markets, it is the perfect move.
“Searching our feelings, we already feel the narrative of Disney changing with investors turning away from the dark side (ESPN) and towards the good within (content, DTC),” Cahall and his team wrote on Wednesday.
ESPN is still is a huge cash cow for Disney, but for Cahall, it represents Disney’s old way of doing business. ESPN relies on cable companies paying a huge premium for its content relative to other channels. As more consumers cut the cord in favour of streaming video services, ESPN has become a growing problem for its parent company.
The Fox acquisition then, is Disney embracing the streaming video trend.
Disney is an expert at monetizing its content, as evidenced by its parks and massive merchandising efforts around its popular franchises. Think about how many Star Wars toys you saw this holiday season. Disney’s move to the streaming world is Disney doing what it does best, contextualized for today’s streaming media environment.
As Disney starts its own over the top video platforms, as it said it will do with a sports service in 2018 and a TV and movie service in 2019, expanding the breadth of its offerings makes it a better Netflix competitor. It’s not just trying to capture a bigger portion of its old cable business, Disney is trying to re-organise itself in the new streaming era.
The reframing doesn’t change Cahall’s rating of the company. In fact, Cahall chose Disney as a top pick before the acquisition and said his conviction is even stronger now.
“It is defensive to ecosystem challenges, a major beneficiary of tax reform and has an evolving narrative around content/DTC with the FOXA deal,” Cahall said. “It’s a worldclass content company and deserving of a premium to the market.”
Cahall has a price target of $US135 for Disney, about 20% higher than where the stock is currently trading.