Walt Disney Co (NYSE:DIS) CEO Bob Iger announced a new organizational March 14 that sees the entertainment giant shuffle the deck chairs slightly in order to accommodate Disney’s push into over-the-top streaming services. That’s good news for Disney stock.

Previously, its Consumer Products and Parks & Resorts segments operated separately. Under the new structure, they’ll combine as one to make room for its new unit, Direct-to-Consumer (DTC) and International Business. 

Run by Kevin Mayer, Disney’s current chief strategy officer, the new unit will include all of Disney’s international businesses, its two new streaming services — ESPN+ this spring and the Disney streaming service next year — and its 60% stake in Hulu once the Twenty-First Century Fox Inc (NASDAQ:FOXA) acquisition is completed.

Realignment Makes Sense

There are several reasons the realignment makes sense. 

“We are strategically positioning our businesses for the future, creating a more effective, global framework to serve consumers worldwide, increase growth, and maximize shareholder value,” said Disney CEO Bob Iger. “With our unparalleled Studio and Media Networks serving as content engines for the company, we are combining the management of our direct-to-consumer distribution platforms, technology and international operations to deliver the entertainment and sports content consumers around the world want most, with more choice, personalization and convenience than ever before.”

There’s a bit of public relations in Iger’s words but you get the picture. The “new” Disney is all about these three ideas.

Although the announcement probably came as a surprise to most investors, it shouldn’t have. Recall Disney announced the two new streaming services last August and then pulled off a giant coup by getting the Murdochs to sell their entertainment assets to Disney for $52.4 billion in stock and the assumption of $14 billion in debt.

Netflix, Inc. (NASDAQ:NFLX) has long been a thorn in the side of Disney because its streaming service encouraged customers to cut the cord on their cable TV bills, effectively cutting Disney out of the picture with a significant chunk of its audience.

Disney had to get those customers back. The two streaming services are its attempt to do just that. To be taken seriously in DTC, Disney’s created a separate division that caters to this segment of the population.

While the two streaming services haven’t made money yet, it’s going to generate big revenue in the future.

Spinning Off Sports

I’ve always believed that Disney should spin off the sports cable network into its own public company. Then it could chase its own audience without having to consider the best interests of the Disney empire.

Instead, the ESPN+ streaming service is getting hived off into the DTC segment, separate from ESPN itself. ESPN will remain in the Media Networks segment co-chaired by James Pitaro, the newly appointed top dog at ESPN.

Disney wouldn’t have created this new operating segment with ESPN+ included if it had any intentions of spinning off ESPN.

If you own Disney stock, don’t expect any news on this front for a very long time — if ever. As far as I’m concerned, the ESPN spinoff is dead.

I’ve always wondered why the company’s Parks & Resorts weren’t combined with its Consumer Products business, which includes the Disney retail stores, because both segments are essentially billboards, albeit profitable ones, for the Disney brand.

Together under one roof, Disney can take some of the Fox movie and TV franchises such as Avatar, X-Men, Planet of the Apes, Titanic, and The Simpsons, and give them the full-court Disney marketing press — both in terms of licensing and as attractions at their various amusement parks and resorts.

To me, the new alignment makes a lot of sense for the future growth of merged Disney-Fox entertainment company. It should at the very least, not impinge on Disney’s future growth.

Bottom Line on Disney Stock

Back in October, I said Disney stock was undervalued in a big way. That was before the Fox deal and the latest realignment of its operating segments.

Trading at the same price as six months ago, Disney stock is extremely undervalued in my opinion. Ignore the uncertainty — in five years, you’ll be happy you did.

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.