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Franchises to Aid Disney Survive Netflix & Amazon Onslaught

Aniruddha Ganguly
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Disney (DIS) continued its fairytale ride at the box office with back-to-back success of Black Panther and Avengers: Infinity War. In fact, the success provided a huge boost to the media giant’s strategy of monetizing franchises from acquired studios like Marvel and Lucasflim. This is evident from the recent box office collections.

Per data from Box Office Mojo, Black Panther currently tops the U.S. box-office gross collection list with $696.7 million trailed only by Avengers: Infinity War which has garnered $558.7 million.

The dominance of these two movies was evident from the fact that the third movie in the list — Paramount’s A Quiet Place — has only collected $171 million to date. Interestingly, Disney’s stand-alone film A Wrinkle in Time didn’t feature in the top #5 with a weak domestic gross collection of $97 million.

Disney is now banking on its blockbuster franchises like the Marvel Cinematic Universe (“MCU”), The Incredibles, Star Wars, Toy Story and Frozen to face the onslaught of content from streaming services like Netflix NFLX, Amazon AMZN, Hulu, HBO, Apple AAPL and Facebook.

The Walt Disney Company Price and Consensus

The Walt Disney Company Price and Consensus | The Walt Disney Company Quote


Content Strength Drives Streaming Services Demand

Robust demand for original content has been a major growth driver for these streaming services in recent times. The companies are spending huge to produce as well as acquire content that are enticing subscribers.

Per data from MoffettNathanson, Netflix spent $6.3 billion on original and acquired content in 2017, higher than Amazon and Hulu, who spent $4.5 billion and $2.5 billion, respectively. Moreover, Netflix was not far behind Disney which spent $7.8 billion on non-sports programming. New entrants like Apple and Facebook spent $1 billion each.

Netflix is now set to release 86 original movies in 2018 as compared with 61 released in 2017. The company has a whopping budget of $8 billion, 85% of which is anticipated to be spent on original content this year.

Although Hulu is expected spend lesser than Netflix on original content, it has an enviable content pipeline supported by its parents — Comcast’s CMCSA NBCUniversal, Disney’s ABC, 21st Century Fox FOXA as well as HBO and CNN owner Time Warner, which has a minority share.

Moreover, Apple has reportedly outspent Facebook and YouTube to acquire original programming. The company is now expected to launch its original shows as early as March 2019.

Amazon is also expected to spend $5 billion this year on original content per JPMorgan. The company is making all efforts to boost its digital media sales and attract new viewers by adding varied series and movies to its content lineup, and making Prime Video more enticing.

Strong Movie Lineup Shielding Disney

However, we believe Disney is not far behind in terms of content strength primarily due to its blockbuster franchises like Marvel and Star Wars.

The company has an impressive line-up of big budget movies slated to be released over the next 18 months. The portfolio include movies involving MCU characters like Ant-Man and the Wasp, Captain Marvel (2019), and Avengers 4 (2019).

The Walt Disney Company Revenue (TTM)

The Walt Disney Company Revenue (TTM) | The Walt Disney Company Quote


Notably per Disney, the MCU “by far the most lucrative box office franchise of all time.” To date, the 19 movies in the MCU have together grossed more than $16 billion.

Apart from MCU, Disney is also set to release The Incredibles 2, Toy Story 4, Frozen 2 along with Star Wars: Episode IX. The company is also set to release Solo: A Star Wars Story on May 23.

The solid content pipeline is also expected to boost Disney’s Consumer Products division as demand for merchandise associated with superhit movies usually skyrockets as was experienced in case of Frozen.

Disney also plans to add Marvel related content for its new standalone streaming service that is set to launch in late 2019. The termination of distribution agreement with Netflix will enable it to offer rich content exclusively from Disney, Pixar, Marvel and Lucasfilm.

Disney has already launched ESPN+ that is offering tournaments like Major League Baseball, National Hockey League, Major League Soccer, Grand Slam tennis and college sports for $4.99 per month. The company recently announced the acquisition of UFC events rights starting in 2019 for five years. This further expands content, which is likely to attract more subscribers in the long haul.

Zacks Rank

Currently, Disney carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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