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Walt Disney Company (The) -- Moody's says that Disney's 86.8m Disney+ subscribers and updated guidance of 230m -- 260m subscribers by FY 2024 is a credit positive

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Announcement: Moody's says that Disney's 86.8m Disney+ subscribers and updated guidance of 230m -- 260m subscribers by FY 2024 is a credit positive

Global Credit Research - 14 Dec 2020

New York, December 14, 2020 -- Moody's Investors Service ("Moody's") said that The Walt Disney Company's (Disney, A2 stable) announcement that about 86.8 million people (about 30% of the subscribers from Disney+ hotstar) have signed up for its flagship streaming service, Disney+, which launched on November 12, 2019, is credit positive. This already puts Disney at the top-end of its initial 2024 forecast of 60 to 90 million global subscribers, and now the company expects the streaming service to reach 230 to 260 million subscribers by fiscal year 2024. This revised guidance and 300 to 350 million overall direct-to-consumer (DTC) guidance for global subscribers across all its streaming platforms will likely pace its main SVOD competitor, Netflix Inc. (Ba3 positive), which currently has about 200 million global subscribers. We have previously stated that we felt that the company's initial forecast was conservative and that Disney would reach its 60 -- 90 million subscriber guidance well in advance of FY 2024, and we remain optimistic about the company's strategic plans and guidance. "The substantial and sustained demand for the service is credit positive because it validates the company's strategic direct-to-consumer (DTC) pivot plan and emboldens the company to increase its commitment to heavily invest in its DTC content over the coming years," stated Neil Begley, a Moody's Senior Vice President..

During the Disney Investor Day, the company detailed its plans to release dozens of new titles onto the Disney+ platform over the next several years, leveraging its storied franchises such as Marvel and Star Wars. We believe that the slate of new content set to release in the coming years will attract many consumers. "We believe that Disney's announced $1 per month increase to the monthly price of Disney+ to $7.99/month in the US will be subtle enough so not to impact churn rates or subscriber growth, and in our view, the overall price point remains competitive," stated Begley. Disney+, Star, and Star+ are also set to launch in new global markets in 2021, which will further accelerate Disney+ subscriber growth. We believe that the international markets are the company's largest growth opportunity. Disney has also entered into an agreement with Comcast Corporation (Comcast, A3 stable), the largest cable operator in the US, to start offering Disney+ and ESPN+ on Comcast's Xfinity set-top boxes, and will look to expand similar distribution arrangements.

Given the avidity and power of Disney's content and brands along with its highly competitive price point, Disney is well positioned for success in a changing media landscape. We believe that the best positioned companies to thrive in this pivot to streaming DTC are those with robust global content in terms of volume, quality and avidity, an international footprint scale to maximize exploitation and lower the production and licensing cost per viewing hour of content, and the scale to attract talent and show runners. "We consider such offerings to be tier-1 streaming platforms, with lesser tier-2 platforms achieving materially lesser scale and higher churn," added Begley. We also believe in the advantages of owning content, including new and library film and television series, and branding it exclusively. It provides companies like Disney with creative control that cannot be jeopardized by outside suppliers raising licensing costs or not renewing upon expiration of contracts for strategic or competitive reasons. The success of Disney's streaming service in the first year since its initial launch of Disney+ reinforces our view that Disney+ will be among the few must-have tier-1 SVOD services as the streaming wars continue to unfold. Moreover, quicker than expected scale will also position the service to achieve profitability ahead of schedule, feeding its content generation engine, and further mitigating any longer-term pressure on the company's EBITDA and free cash flow from traditional linear television exposure.

The Walt Disney Company ("Disney"), with its headquarters in Burbank, California, is a diversified worldwide media and entertainment company operating under four main business segments (as a percentage of fiscal year 2020 revenues): Media Networks (40%), Parks, Experiences & Products (23%), Studio Entertainment (13%), Direct-to-Consumer & International (24%). Consolidated, as reported total revenue for fiscal year 2020 was about $65.4 billion.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Neil Begley Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Lenny J. Ajzenman Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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