by Will Ashworth | March 6, 2014 6:00 am
Disney (DIS) signed a deal Tuesday with Dish Network (DISH) that gives the nation’s second-largest satellite provider key content for establishing an internet streaming service.
DISH will have access to ESPN, the Fusion news service, the ABC broadcast channels and all the other great Disney content. DIS stock reacted favorably to the announcement up almost 3% on the day.
The deal is just one of five things driving DIS stock through the roof. Read on and I’ll fill you in on the others.
Shortly after the DIS/DISH announcement, Verizon (VZ) CEO Lowell McAdams said his company is also looking for content partners so it too can develop an Internet TV service for its FIOS customers. CBS (CBS) CEO Les Moonves said this about the deal: “Everybody’s talking about over the top. We’re talking about it with many of the [pay TV distributors] we’re in business with.” You don’t have to be a rocket scientist to know this is only the beginning of pay TV on the Internet. Deals will pile up as TV viewing as we knew it disappears. DIS stock clearly benefits from this sea change.
As yesterday’s deal alluded to, ESPN’s SEC Network will be available to DISH customers who sign up for the internet streaming service. I might be from Canada and born with hockey skates on my feet but even I know the SEC (we’re not talking about the Securities and Exchange Commission) is nearly a religion in many parts of the U.S.
DISH customers will be able to watch games on their iPads or phones while on the road. ESPN was a big reason for Disney’s cable networks delivering a 34% increase in operating income in the first quarter. In Q1, its cable networks generated 42% of its operating income — 200 basis points higher than in the same period a year earlier. That’s very good news for DIS stock.
Disney’s animated film Frozen won two Oscars this past Sunday; the first win for Disney Animation Studios since the Academy of Motion Picture Arts and Sciences introduced the best animated feature award in 2001. Pixar, its very successful stablemate since 2006, usually takes the award. Fittingly, Frozen’s box office haul passed $1 billion on the same day as the Oscars.
Now that the Disney side of animation is back from near extinction, Disney brings a double-threat to the animation table (Pixar and Disney Animation Studios). Proof of this came in Q1 where its studio entertainment segment saw revenues increase 23% in the quarter to $1.9 billion and operating income 75% to $409 million. Although ESPN drives the Disney bus, a healthy studio entertainment segment is vital to DIS stock moving higher.
In a February article I speculated about some of the cable network consolidation that’s bound to occur once Comcast (CMCSA) buys Time Warner Cable (TWC) and officially becomes the schoolyard bully.
One acquisition I’d love to see but have no clue whether Hearst Corporation has any interest in is A&E Networks. DIS already owns 50% of the joint venture. I’d like to see them buy the other 50% from Hearst, building a cable network powerhouse that would then further consolidate in order to keep some of its multichannel video programming distributors honest.
The DISH deal only plays into that. DIS stock wins big in this scenario.
The February announcement that Disney was hooking up with iTunes to offer the Disney Movies Anywhere app that allows you to watch over 400 movies anywhere either on the app or iTunes. The move makes an already close relationship even closer, prompting some to speculate (every six months or so) that Apple (AAPL) should buy Disney.
All of Disney’s businesses involve technology in one form or another, so a hook-up wouldn’t be a stretch. Tesla (TSLA) might be a more technology-appropriate target, but there aren’t too many companies better run than Disney.
Bob Iger is on Apple’s board, so any prospective deal would have to be negotiated without him. The odds of this happening are slim to none but if it did DIS stock would definitely drive through the roof.
It’s hard to think of a time when Disney has been in better shape. With the exception of its broadcasting business, every area of the company is performing beautifully. From a valuation perspective I wouldn’t consider DIS stock expensive, although it is trading above its historical norms.
If you’re a buy-and-hold investor these five items should be plenty to get you on board.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.
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