Disney Needs to Spin Out Disney+ Into a New Company

By Douglas A. McIntyre Updated Nov 16, 8:18AM EST · Published Nov 14, 8:09AM EST

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Disney Needs to Spin Out Disney+ Into a New Company — © smemon / Flickr

Consider that Walt Disney Co. (NYSE: DIS | DIS Price Prediction) 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.”

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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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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.