Disney DIS recently announced a broad structural reorganization of media and entertainment businesses in a bid to ramp up and streamline the direct-to-consumer strategy. This decision was taken after activist investor Dan Loeb (a major investor in the company through his Third Point Capital hedge fund) argued that the company needed to cut dividend to increase spending on new TV shows and movies for signing up new customers more quickly.
Disney will create a new Media and Entertainment Distribution group, which will oversee all content monetization and streaming operations.
This group will be responsible for complete monetization of content, both distribution and ad sales. Moreover, it will oversee operations of the company's streaming services, and have sole P&L accountability for Disneys media as well as entertainment businesses.
The reorganization means that top leadership at studios, general entertainment and sports remains the same, with Alan Horn and Alan Bergman serving as chairman of studios content, Peter Rice as chairman of general entertainment content and James Pitaro as chairman of ESPN and sports content. All five will report directly to the company’s CEO, Bob Chapek.
Markedly, the reorganization is effective immediately, and Disney’s financial reporting will switch to the new structure in first-quarter fiscal 2021.
The Walt Disney Company Price and Consensus
The Walt Disney Company price-consensus-chart | The Walt Disney Company Quote
Studio Restructuring to Bolster Disney’s Content Focus
The move comes in less than a year after the launch of Disney+. It has surpassed the 60 million subscriber mark since its launch.
Under the new structure, the studios will continue to develop and produce originals for Disney’s streaming services — which include Disney+, Hulu and ESPN Plus — as well as legacy platforms. Distribution and commercialization will now be centralized under the Media and Entertainment Distribution group.
Three groups will be responsible for producing content for film, linear TV and streaming services: studios, general entertainment and sports, under the purview of Alan F. Horn and Alan Bergman, Peter Rice, and James Pitaro.
Studios Content will include the content engines of The Walt Disney Studios, including Disney live action and Walt Disney Animation Studios, Pixar Animation Studios, Marvel Studios, Lucasfilm, 20th Century Studios and Searchlight Pictures.
General Entertainment Content will include the content engines of 20th Television, ABC Signature and Touchstone Television, ABC News, Disney Channels, Freeform, FX, and National Geographic.
Sports Content will focus on ESPN's live sports programming, as well as sports news, and original and non-scripted sports-related content, for the cable channels, ESPN+, and ABC.
Disney Follows Competitors’ Footsteps
Disney is the latest entertainment giant to reorient the business by separating decisions over which shows and movies should be produced from decisions over which platforms are best suited to carry them.
Comcast’s CMCSA NBCUniversal has restructured much of its content business keeping this goal in mind and looking to elevate the Peacock streaming service.
Meanwhile, AT&T T — which debuted the HBO Max streaming service in May — reorganized in August to combine film and TV operations under one studio head to better compete in the streaming media wars.
However, Disney faces significant competition in the global video-streaming market, which is currently dominated by Netflix NFLX. Moreover, coronavirus-led disruption has negatively impacted the majority of Disney’s businesses including Studio Entertainment, Theme Parks, cruise and advertising.
The Studio Entertainment business is expected to suffer delayed releases. In third-quarter fiscal 2020, the Studio Entertainment segment (accounting for 14.8% of revenues) revenues decreased 54.7% year over year to $1.74 billion.
Further, the time by which film and content production can resume is uncertain. Despite a healthy portfolio of new releases, the lack of visibility poses a challenge to the Zacks Rank #4 (Sell) company’s Studio business.
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