As many investors expected, Walt Disney Co (NYSE:DIS) confirmed Thursday morning that they are buying television production assets from fellow media giant Twenty-First Century Fox Inc (NASDAQ:FOXA) for $52 billion. Both FOX and DIS stock are up on the news.
This move is unprecedented in nature. But so are the times in which the deal was made.
Netflix, Inc. (NASDAQ:NFLX) has pioneered a new era of over-the-top (OTT) entertainment. As opposed to turning on the TV and scrolling through cable channels, consumers are now watching Netflix. As opposed to going to the theater and watching the latest big movie, consumers are now turning on Netflix and watching the latest originals.
And its not just Netflix. Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Facebook Inc (NASDAQ:FB) and Apple Inc. (NASDAQ:AAPL) are all looking to get into or are already in this space.
In other words, entertainment has become a big party for tech giants.
Traditional media giants, like Disney and Fox, weren’t invited to that party.
But now, DIS stock is forcing itself into the party. And with Fox assets in its content war-chest, Disney has an opportunity to become the hottest topic at that party in the foreseeable future.
Disney Has the Most Firepower in the Content Wars
For those who are unaware, Disney is going all-in with OTT streaming services starting next year. The company plans to launch ESPN Plus, an ESPN streaming service, in the Spring of 2018. It also plans to launch a Disney streaming service in the back half of 2019.
Everyone else is also going all-in with OTT entertainment. Facebook wants to get into this space with Watch. Amazon is trying to come up with the next Game of Thrones. Apple is expected to drop $1 billion on original content next year. Google continues to build out YouTube’s capabilities.
In other words, the OTT entertainment space is getting crowded. That is why in the OTT entertainment world, content is everything. Content is the only way these various OTT platforms can differentiate themselves.
Thus, the question “who wins the OTT entertainment wars” can be framed as “who has the best content”.
The answer? Disney.
DIS stock is building a war chest full of the best content in the world. Through acquiring Pixar in 2006, Marvel in 2009 and LucasArts in 2012, Disney has already amassed the most-watched content portfolio in the world. Adding 20th Century Fox films into the fold only further strengthens Disney’s content pipeline.
And its not like Disney is just throwing unrelated content into its war-chest. Fox’s content fits perfectly alongside Disney’s content.
With this acquisition, Disney will be able to bring back sci-fi franchises such as X-Men and Fantastic Four into the Marvel Cinematic Universe. Disney will be able to morph two great animation studios and own essentially every good animated film made in the past 20 years.
Disney will also acquire Avatar, the best-selling movie of all-time that has tremendous potential to turn into a series. Then there is Cast Away, the Home Alone franchise, The Martian, Independence Day and The Revenant, among many others, all of which are now Disney-owned assets.
If that sounds like a robust content pipeline, its because it is a robust content pipeline.
All together, Disney and Fox were behind six of the top seven grossing films last year. So far this year, the two studios are behind four of the top eight grossing films.
Now, put all of those movies on one streaming platform.
Bottom Line on DIS Stock
People aren’t going to suddenly ditch Netflix and buy into Disney’s streaming platform.
Instead, what will happen over the next several years is that a growing number of consumers will continue to cut the cord. Those cord-cutters won’t just adopt one streaming platform, but multiple streaming platforms.
The average cable bill is $100 per month. Netflix costs $14 per month at its top tier. Disney said its streaming service will cost far less.
Do the math: $14 + something less than $14 = something far less than $100.
Both Netflix and DIS stock will grow alongside one another in the OTT entertainment space. NFLX stock is priced for this explosive growth.
DIS stock isn’t, and that is the opportunity.
As of this writing, Luke Lango was long DIS, NFLX, AMZN, GOOG, and FB.