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Disney reorganization a 'significant positive': Credit Suisse

Wall Street analysts were quick to react to news of Disney's reorganization of its media and entertainment business as its pivots to streaming content. Credit Suisse called the move "a significant positive" for the company, noting that company-wide, Disney likely spends more than Netflix on content (excluding sports and news). The Final Round discusses the bullish call, as well as what the move means the streaming industry as a whole.

Video Transcript

JEN ROGERS: Welcome back to "The Final Round" on Yahoo Finance. We've got stocks lower here right now. Not looking like a five-day winning streak will be in the books, but who knows. We've got 40 minutes left in the trading session.

One mover to the upside, though, is Disney. Disney's up here. It's the biggest mover to the upside in the Dow, up just about 3.3%. A number of calls out here on the stock reorganization announced yesterday, focusing the company on streaming. I mean, I think they were focused on it before, but I guess now it's more obvious than ever that they're focused on streaming.

We're going to be talking about Credit Suisse and their note coming out here and the move, they're saying aggressively pivoting here to streaming. They keep their outperform rating, $146 price target. Dan Roberts, you've been covering this a lot. And some of the stuff I thought was interesting in here, and they had a couple of charts about it, was sort of pulling out and teasing out what's going on with Disney+ and Hulu versus Netflix.

And there are a number of people that think they really need to leverage that together and forget the fact that Disney+ is a family-friendly brand. And oh my gosh, we don't to scare people off with what could we have on there. But they to figure out how to get these two together. Does that come out to you in some of the charts here that they showed in terms of what's happening with the streaming universe?

DAN ROBERTS: Well, it is interesting, because Disney has clearly decided that Hulu is the adult platform. And then Disney+ is for the kiddie, family-friendly stuff. And actually, I would argue that just amid the pandemic, Disney has achieved some kind of praise, maybe new eyeballs, maybe new subscribers for making Hulu the home of FX.

If you remember, that's a relatively new decision. So the entire FX library now on Hulu. And those are very adult programs. And I think that's why they see the two apps as so distinct.

And then, by the way, just the third leg of the Disney streaming tripod is ESPN+, which has had more modest growth. But I do think that soon, you're going to start to see not only more interplay between two of the three, but also you might see even some kind of new fourth offering. I mean, the sort of sky's the limit here, especially now with the reorg.

And if I may, let me just add this note kind of very clearly explained with the reorg is a lot better than some of the media coverage I've seen. I mean, it's very simple, right? And sometimes, we know in our world that that's the irony, is that sometimes things are more lucidly explained in a financial bank analyst note than they are in an article. There is now the parks, and then basically, there is everything else.

But those are bifurcated between two subdivisions. One is a non-revenue, purely content-creation segment. The other is all the people will have to worry about distributing and monetizing that content.

And, as you said, it was already focused on streaming. I mean, Bob Iger, almost two years ago on a call, on an earnings call, said that DTC, direct to consumer, is now our number one priority at the company. So in some ways, this isn't surprising. But rarely is a reorg this sexy to Wall Street. But when we're talking about Disney+, it is.

And I think this is the company just overtly embracing the pandemic-driven acceleration of Disney+. But really, I think the biggest change you'll see-- and maybe we won't see it publicly, but internally, is the kind of people at the company who are doing creative stuff, whether it's working on an original Marvel series, an original Star Wars series, like "Mandalorian," a movie, now they're going to be working on it without necessarily knowing ahead of time where it's going to go. I mean, you might be helping to write the next Thor movie and it might not go to theaters. Someone might decide that that's going to go straight to Disney+.

The point being you don't know. You shouldn't have to worry about it. The quality should be the same either way. And then let the distribution and the monetization people decide what's going to go where.

And what's the real bottom line here? A lot more is going to go straight to Disney+. I think that's obvious. And you could've seen that coming before the pandemic.

But now with the demise of movie theaters-- which I think sucks. You guys know I'm a big believer in movie theaters. But I think you're going to see a lot more marquee things that would've been seen as big blockbuster properties just go straight to one of those three streaming outlets.

JEN ROGERS: Yeah, I mean, we've already seem what's happening with AMC, saying they are possibly going to run out of cash at the end of this year. I think the reason it's been confusing for people to explain is frankly, it is confusing. We're going to have these four guys in charge of making movies for different places, and then this one other place is going to decide where it's going to go. But maybe it's so confusing because this is a legacy business, Brian Cheung, bring you in here, to compete against Netflix, which gets to be bottom up, doesn't have to have a theme park, doesn't have to have somebody trying to put Elsa from Frozen on everybody's thermos. It's just a much simpler business for Netflix.

BRIAN CHEUNG: Well, it is. But I think that we have to acknowledge that when it's not in the middle of a once-in-a-lifetime pandemic that they do like having those other revenue streams. I think that's largely a big reason why it was Bob Chapek, the head of parks, that was then really headed at the ascension of Disney when Bob Iger did step down.

Now, of course, you do wonder to what degree everything that's happening now with this full-on shift and doubling down of the streaming services, is that Bob Iger really grabbing the reins back from Bob Chapek, knowing that the parks division is essentially lifeless in the middle of this pandemic, especially after they had tried with Disneyland in California to try to reopen. It just seems like that's not going to be the case. But I think we have to understand the duration of the time window here, when we consider that it's basically well known that nothing can go back to normal until we get that vaccine. And if you assume that we won't get a vaccine until the third quarter of next year, you have to wonder, does this leaning into the streaming service really rely on a slate of content, new content that's unique to Disney+ that can be rolled out over the next three quarters?

And I think that's why, really, you have to think about Marvel, for example, Credit Suisse noting that timeline really has things like "The Falcon and the Winter Soldier," Marvel's "What If...?"-- these are selected dramas or TV shows that are supposedly due on the Disney+ platform in the beginning of next year, in addition to "Soul," which is a movie, Jamie Foxx, Angela Bassett, that's supposed to be coming out soon. These are going to be the main drivers that's going to give a business case for people to subscribe to Disney+ in the next few months. I think that's going to be critical to bridging until we can get that vaccine and until the parks can reopen.

JEN ROGERS: Another interesting part from this note is everyone thinks Netflix, because they do spend a lot of money on content, that they're just-- they're the 800 pound gorilla and spend more than everybody else. And the note calls out here in the third bullet point that actually, company-wide, Disney spends more on content than investors may realize, $18 billion exports and news. And while not apples to apples more than Netflix, it happens to be for the 20-- 20th in terms of expectations at $13 billion.

So they really are investing here. To your point about what's going to come out and when is it going to come out, they seem to have that deep bench of programming. But is it too siloed for the long run to compete against Netflix? That seems to be a question that is still out there.

Meanwhile, stock is still up. Look at that, up 3 and 1/2%, leading the Dow higher and knocking on the door of $130 right now.