Walt Disney Co (DIS) Stock Can Save Itself With This Move

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When a great company’s results fall flat, every reporter and analyst becomes a doctor. Take Walt Disney Co (NYSE:DIS), please. Over the last year, Disney stock is down 16%. Year-over-year growth, as reported in the last quarter, is negative.

Walt Disney Co (DIS) Stock Can Save Itself With This Move

The usual medicine prescribed by Wall Street for these ills is a big, big deal. A big, big deal will mean big fees for banks and big profits for arbitrageurs. But such a deal isn’t what DIS stock needs right now.

The wags say buy Netflix, Inc. (NASDAQ:NFLX). Disney CEO Bob Iger is approaching retirement, so Netflix CEO Reed Hastings can replace him. Has Time Warner Inc (NYSE:TWX) not solved its problems by having AT&T Inc. (NYSE:T) buy them?

Besides, NFLX has algorithms. Wall Street likes algorithms. Netflix algorithms tell it what people want to watch, in real time, as the algorithms suggest to viewers what they want to watch next. Algorithms can keep Disney stock from taking a hit by avoiding box office bombs like The Finest Hours, which has only brought in $28 million since its January release.

DIS Stock: The Problem Is ESPN

Buying Netflix is a horrible, terrible, no good, bad idea that wouldn’t help DIS stock in the way people think.

First, NFLX is not for sale. After its most recent blowout quarter, it is worth nearly $50 billion, more than one-third of Disney’s $161 billion. Netflix shareholders are very happy being independent, so it would take $75 billion to do the deal. You’re going to pay half your market cap for a distribution channel?

Uh, no.

Besides, Netflix isn’t even the problem, as wiser heads like this one have noted. The problem for Disney stock is TV. Specifically, it’s cable. More specifically, it’s ESPN. You know, duh-duh-duh.

Consumers are cutting out cable, switching to services like Netflix and other over-the-top streaming services like Hulu, in which DIS holds a stake. The Media Networks segment, of which ESPN is the largest part, has more than twice the revenue of the movie studio.

Buying Netflix will not solve Disney stock’s problem.

The only way to solve DIS stock’s problem is for the company to essentially break-up ESPN. The main attraction of ESPN is live sports. Many leagues, even teams, have been creating their own networks to get a bigger piece of that pie.

There are now networks for all major sports, and ESPN runs the largest of these, the NFL Network. Each network gains a separate fee from cable subscribers, and the leagues fill in the time with talk shows no one watches.

ESPN has a streaming service called WatchESPN. It knows how to do streaming. It even knows how to get paid for streaming. Cable operators make it an added tier on internet bills.

Bottom Line for Disney Stock

Disney needs to combine these ideas. Sell a streaming package that includes only football games, like AT&T’s NFL Sunday Ticket. Sell a package that includes only basketball, one that includes only hockey and one that includes only soccer. Tennis and golf, even rugby and cricket, have avid fans who would gladly pay to have their specific needs met.

This means every sport, and every show, pays its own way. Most of the chat shows will go away. Maybe even SportsCenter will go away, replaced by shows specific to each sport, shows that already exist. This would be an excellent solution for DIS stock.

Once you have your streaming audiences under control, you can adjust your pricing to maximize revenue in each sport. You could even offer the biggest games pay-per-view. Consumers will buy with the money they’re no longer spending on cable. Disney stock would be on the rise again.

This would take a year or so to implement, but DIS already owns a lot of the infrastructure. It would need customer marketing and billing. But it would also be getting the kind of data on sports Netflix now gets on entertainment, and by 2018 the company can either work to make Hulu competitive or go its own way.

After all, movies, theme park tickets, and plush dolls are all sold directly to consumers, for the highest possible mark-up. Why not TV?

Dana Blankenhorn is a financial and technology journalist. His latest novel is Bridget O’Flynn vs. Something Big & Ugly. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in DIS.

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Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Tweet him at @danablankenhorn, connect with him on Mastodon or subscribe to his Substack.


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