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Disney Needs to Spin Out Disney+ Into a New Company
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Consider that Walt Disney Co. (NYSE: DIS) has a market cap of $250 billion. Netflix Inc. (NASDAQ: NFLX), a much smaller corporation by revenue, has a market cap of $213 billion. Streaming is better, Wall Street reasons than theme parks and movie production. And, Disney does have a streaming business with Disney+ and other brands it owns in the same sector. To unlock the value of these, Disney needs to spin them out, and leave the legacy businesses on their own.
Disney’s third-quarter earnings show how badly the company has been savaged by COVID-19. Revenue fell 23% to $14.7 billion. EPS fell from $.43 to a loss of $.39. Theme park revenue dropped 61% to $2.6 billion. Disney’s studio revenue fell 52% to $1.6 billion. It is worth remembering that Disney was the dominant studio in the U.S. based on revenue, in 2019.
On the other hand, Disney’s direct to consumer revenue rose 41% to $4.9 billion. This unit houses Disney’s streaming business. CEO Bob Chapek said: “The real bright spot has been our direct-to-consumer business, which is key to the future of our company, and on this anniversary of the launch of Disney+ we’re pleased to report that, as of the end of the fourth quarter, the service had more than 73 million paid subscribers – far surpassing our expectations in just its first year.”
Disney+ is joined by ESPN+ and Hulu, the company’s two other streaming brands. Among them, they have about 121 million streaming subscribers. Netflix has 195 million.
One of the notable points about Disney’s legacy businesses is that, even when the COVID-19 pandemic fades, which make take over a year, these will not be growth businesses, at least not compared to the streaming operations. To keep them together is to match two types of businesses that are not like one another in most aspects.
Disney’s streaming operations will still need content from its studios and networks, but that is not unlike those of Amazon.com Inc (NASDAQ: AMZN).
Streaming prime businesss or Netflix. A more efficient way to get entertainment to consumers is worth more to investors.
Disney+ and Disney legacy is no longer a good marriage in terms of the value each creates.
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