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ETFs to Shine as Disney Works on Revamping Streaming Arm

Sweta Jaiswal, FRM
·5 mins read

The Walt Disney Company (DIS) has announced a strategic reorganization of its media and entertainment businesses, prioritizing Disney+ and its other direct-to-consumer (DTC) platforms. In this regard, Disney’s CEO Bob Chapek reportedly said, “given the incredible success of Disney+ and our plans to accelerate our direct-to-consumer business, we are strategically positioning our Company to more effectively support our growth strategy and increase shareholder value.” Buoyed by the news, Disney’s share price rose around 4% in after-hour trading on Oct 12.

It is worth noting here that Disney+ has been delivering a great performance. After being launched on Nov 12, 2019, Disney+ added 57.5 million paid subscribers as of Jun 27. As of Aug 3, Disney+ subscriber base crossed 60.5 million.

Meanwhile, Disney has taken this move at a time when its tourism-related businesses are suffering due to the pandemic, resulting in a cut of around 28,000 jobs at its theme-park, cruise-line and retail operations, per the sources. Moreover, people have reportedly restricted their spending on movies, concerts and theme parks, which is building pressure on the company’s financials.

Going by a Bloomberg article, Disney’s restructuring plans have been released less than week after an activist investor Dan Loeb suggested Chapek through a letter to increase funding substantially for its streaming solutions.

Inside Disney’s New Structure

Switching from traditional film and television production, the company’s three content groups — Studios, General Entertainment, and Sports — will now be required to create content for theatrical, linear and streaming with Disney’s video-streaming services as the ‘key focus.’ Moreover, Disney has established a new distribution arm, Media and Entertainment Distribution organization. This division will be solely responsible for managing its profits from content created across the entire company, including both distribution and ad sales. It will also oversee operations of the company’s streaming services.

Per the company, the new structure is effective immediately. However, Disney expects to present this new structure in its financial reporting statements in the first quarter of fiscal 2021.

Coronavirus Boosts Streaming Services Market Prospects

The coronavirus crisis has forced people to maintain social distancing and work remotely. More and more people are spending time at home, in keeping with the social-distancing guidelines. As a result, people are resorting to streaming platforms for in-house entertainment. In fact, going by data from Grabyo’s “At Home Video Trends—U.S. 2020” study, people in the United States are spending 22% more on streaming than in January 2020 along with spending increase of an average of $1 billion a month, according to a Cord Cutter News article.

The study also reflects that 89% of Americans are spending on a video service, with 33% of those buying at least one new streaming service since March. The report also suggests that people plan maintain all subscriptions even after the easing of pandemic-related restrictions. Going by Nielsen’s latest Total Audience Report, as of this year’s second quarter, streaming accounts for one-fourth of all television minutes viewed.

A Statista report strengthens our belief about the booming streaming market prospects. The global Video Streaming segment is expected to see a CAGR of 10.7% between 2020 and 2025, resulting in a forecasted market volume of $85,735 million by 2025, per the report. Moreover, user penetration is expected to reach 17.2% by 2025 from a projected 11.9% in 2020, according to the Statista report.

ETFs to Shine

The news can positively impact ETFs, especially those that have the largest allocation to this media and entertainment conglomerate.

iShares Evolved U.S. Media and Entertainment ETF IEME

This actively-managed ETF employs data science techniques to identify companies with exposure to the media and entertainment sector. Holding 90 stocks in its basket, Disney occupies the fourth position in the basket with a 4.8% share. The fund has accumulated $10.9 million in its asset base and charges 18 basis points (bps) in annual fees (read: Disney ETFs Likely to Benefit Materially From Mulan Release).

iShares U.S. Consumer Services ETF IYC

This ETF offers exposure to U.S. companies that distribute food, drugs, general retail items and media by tracking the Dow Jones U.S. Consumer Services Capped Index. It holds 132 stocks in its basket, with Disney taking the eighth spot at 4%. The fund has amassed $1.03 billion in its asset base. It charges 43 bps in annual fees as stated in the prospectus (read: Americans Supporting Higher Taxes: ETFs to Gain).

The Communication Services Select Sector SPDR Fund XLC

This ETF offers exposure to the communication services sector of the S&P 500 Index and has accumulated $10.08 billion in its asset base. It follows the Communication Services Select Sector Index and holds 26 stocks in its basket, with Disney occupying the 11th position at 4.1%. The product charges 13 bps in annual fees (read: More Run for Tech ETFs After Sizzling FAAG Earnings?).

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iShares U.S. Consumer Services ETF (IYC): ETF Research Reports
 
iShares Evolved U.S. Media and Entertainment ETF (IEME): ETF Research Reports
 
Communication Services Select Sector SPDR ETF (XLC): ETF Research Reports
 
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