The digital entertainment space is changing fast. Several companies have had to adapt their strategies to favor streaming and on-demand products and services, while traditional media companies that doubled down on cable and network TV stand to lose the most.
Disney and its competent management team have been adjusting very well to these changes, especially with the launch of Disney+ at the core of the company’s digital strategy. We believe that streaming will turbocharge Disney stock, rather than disrupt it.
Below are some points that support the thesis.
Streaming: the digital transformation
The main theme underway in media is the shift from linear TV to the on-demand digital environment. Streaming is now a hugely important piece of entertainment consumption, as traditional cable TV takes a back seat.
People spend 56% of their time on digital media, a positive factor for Disney as it seeks to migrate its shows to this medium. Through initiatives like Disney+, the company can minimize the negative impact of cord-cutting on its more traditional channels.
The OTT (over-the-top) market is projected to grow its TAM by 128% between 2019 and 2025, which suggest excellent growth prospects for the sector over the next 5 years at least. Disney can not only take advantage of the trend to grow its revenues, but the stock can also benefit from expanding valuations that are usually associated with digital-based, scalable, and high-growth initiatives.
In addition, although Disney is new to streaming, it has already grabbed a good chunk of this promising market. Netflix still leads, but it has gradually been giving up market share to other players. With a high-quality library of content, Disney could eventually surpass its big rival.
Undisputed quality of Disney productions
The powerful Disney franchises and the under-explored universes of Marvel, Pixar and Star Wars can be strategic assets used by Disney+ to beat Netflix in award nominations. The acquisition of 21st Century Fox should also contribute to the quality of new Disney productions.
Compared to other platforms, Disney+ might not have the largest content portfolio. But the company's strategy focuses primarily on quality, not quantity, which is evident in Disney’s recent Academy Awards wins (see chart below).
By pursuing the streaming business more aggressively, Disney aligns its strategy with the right trends in entertainment over the coming years, which should positively impact financial results and, perhaps, share price as well.
Investors looking for long-term growth stories that still appear to be in their early innings might want to look more closely at DIS.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the MavenFlix)