I rarely sell anything. That’s because stocks tend to go up over time and I almost always regret selling. I’ve posted many times about how I regret selling most of my UNH shares 20 years ago, or how I regret selling half my TMUS shares 10 years ago, etc. In fact, as I’ve explained, the “losses” incurred by selling each of those, far outweigh the loss I took on TDFX as I rode it down to zero.
Why did I sell Disney?
Last time it popped on news (Iger), shortly thereafter, I regretted not selling it.
Not all their segments are doing well recently. Usually they are firing on all cylinders. Movies especially, and if the public taste for blockbuster superhero movies remains lowered, well, that segment won’t recover for a while.
The segments that are doing well are:
a. Capital intensive (cruise ships, parks, etc), and capital is still pretty expensive.
b. Very susceptible to even a slight downturn. And, even if there’s no recession in 2024, there probably will be one at some point soon. We haven’t had a “natural” recession in quite a while.
I’m not convinced that this new sports streaming service deal will be all that great. And it may even fall apart pretty rapidly if the 3 parties can’t agree on how to divvy up the income despite each owning 1/3 of the business. For example, what if uptake is too slow and some of the parties want to offer incentives (discounts)? Do the “more valuable” properties contribute equally to those discounts? Do they contribute less (because they offer more value)? Or do they contribute more (because they will benefit more from new subs)? The whole deal could end up imploding due to such disagreements.
Again, I’m not convinced that the Epic deal will produce much for Disney. This one has the biggest chance to do so, but somehow it seems like Disney is late to the party (the gaming party). They have hugely strong franchises that could have been used for gaming over the last decade or two, and they hardly used them in that manner. Are they too late? Time will tell.
I don’t hate the company, it can be a very profitable one, but earnings will have to grow quite a bit before they become interesting at this price. I will definitely keep an eye on Disney and perhaps buy it back at lower prices, but for now, I’m taking the sudden pop.
Interesting … because I’m thinking of buying back in.
The stock is near a recent low in spite of the pop yesterday. The primary reason is because i have confidence in Iger, and the smaller details include
trepidation about the loss of income from linear channels about to be assuaged by streaming service. I would say Disney is likely to be one of the top streamers, not #1 (that will be Netflix for some time to come), but certainly head and shoulders above Paramount, Peacock, and similar. For me YouTube/TikTok etc are wild cards, but it’s hard to imagine that the market for “well produced entertainment” is going to evaporate, but I’m sure there will be some diminution in favor of “shared screen time.”
Parks, cruises, etc. are solid. A recession would hurt, obviously, but that’s not in the immediate future, is it?
The new sports venture is a question mark. ESPN is a powerful brand, but they still don’t “own” the core product, and if the leagues decide to “do it themselves” then that could be trouble. Based on my experience in broadcast the teams/leagues have often pulled the rights back in-house, and they always find that it’s more trouble and that they don’t really know how to run such a big ancillary business. Could be different this time, I suppose.
I agree about the movie business, the superhero franchises are tired, but Iger faced exactly this issue before (different franchises of course) and came up with new franchises to exploit. I suspect there is an answer, although I don’t know what it will be.
I note that Iger is fending off a couple of board challenges, and rather brilliantly based on the recent quarterly. There are political issues now too, of course, but I think he recognizes that it needs to be addressed (along with the content of the films, which I believed have veered too far into fields that are unnecessary for mass audiences.)
Anyway, given their intellectual property heft and Iger’s last tour, not to mention the reinstatement of dividend make me think it might be time. Dunno, still pondering it.
PS: I expect no meaningful change in the company results for at least a year. It’s a big ship, with many projects having a 2-3 year development period. Looking for hyper growth, or even growth given the current circumstances seems an unlikely prospect.
When Iger came back about a year ago, the stock similarly popped … and then came right back down. That was my point in 1 above. I too have confidence in Iger, certainly more than anyone else that’s been at the helm recently. But that may not be enough.
They almost surely will be one of the top streamers. They have a massive library of compelling content and keep adding more. However, that may not be enough in a very competitive streaming market. I look at it this way - even content can become commoditized, and commodity businesses often end up with lower margins as the competitors compete with each other.
Netflix is incredible. They do spend large sums on some of their content (like House of Cards or Stranger Things), and those do as well as any “big” content usually does on average. But they also spend small sums on a whole bunch of “cheap” content, and for every 100 sets of cheap content, one or two or even 5 of them suddenly become big hits for them. That should lead to them having higher margins than the folks who spend mostly on “big” content.
My wife and I watch “all” movies. At least all the movies over the last 6 or 7 years (due to the advent of “all you can eat” subscription services). And as time passes, it’s clear that Disney is slowly losing their luster. I don’t know if it’s mostly because other producers have upped their game or if Disney quality has declined, but it’s probably a combination of both. The Disney magic just isn’t there anymore, and we often leave somewhat disappointed. Everyone “knows” the answer in the movie business …come up with something new and innovative that will keep the attention of the crowd (and that won’t pi$$ off segments of the potential audience). Essentially create some new franchises instead of constantly retreading the old ones.
For the most part, Disney isn’t the kind of business that can do hyper growth anymore. Growth in this kind of business is mostly proportional to population growth and proportional to above-inflation price increases. Once in a rare while a new business segment might be added and succeed enough to provide nice growth for a period of time. That last time Disney did that was when they added cruises, and that was more than 20 years ago. The new hope for growth is likely the gaming segment, and we shall see what happens with that.
I am long DIS, bias toward adding to my long-term position (I also swing-trade it).
I think with the dividend, if it has to come back (and quite frankly, I might prefer debt reduction first) then make it quarterly. No reason not to.
Problems with the movie segment might still be residual effects from SARS specific to this company, for whatever odd reason. Or, Spielberg did warn that the model DIS employs for franchises eventually may weaken…he may have overstated it by comparing it to Westerns, but I do not miss his point…
In terms of creating new franchises, what bothers me sometimes is why some things that are obvious are not explored…why not for instance remake The Black Hole. And hopefully the company isn’t serious when it says only Ford can be Jones…we need more of that series (yes, we do; no matter the failure of the last one, which I thought was a cool picture).
I think too on the Pixar side the company needs to ramp up its product cadence…go for two every year, eventually upping to three. That might make the model more long-tail in nature (and thus lower revenue per entry) but I would rather that than less product and always slowing things down by being perfect.
The video-game thing…I just don’t know about that. I will defer to the analysis already presented in the thread, except to say, that amount of money could have gone toward reducing debt.
If DIS somehow reduced debt a lot - say it floated stock and got rid of it - you know what might be interesting: buy WBD for DC and HBO and the library. Maybe sell off the cable channels (TBS, etc.) and the Discovery portion and make the streaming bundle HBO/E+/D+. Perhaps sell Hulu or absorb Hulu into HBO. It could even sell off the vaunted WBD video game division since it has already made that $1.5 billion investment. The enterprise value is high though, not sure this could even work, so just put this under a fantasy experiment category, but the idea of DC and Marvel together might be a cool concept to fans…
The way I see it is that the entire industry is over-relying on the superhero genre. And there is some evidence that the viewers are a little tired of that genre right now. That doesn’t mean that there isn’t huge demand for it, there will always be huge demand for superhero films. But it does mean that the too-rapid production by all the competitors will dilute that demand, and maybe even reduce it a little. Especially if they “phone it in” like they did with Madame Web (saw it a few days ago and it’s not particularly good). Luckily this stinker wasn’t Disney. My advice to the film industry - slow down the superhero releases, maybe even take a 6 month or year break. Then slowly release them one by one with a nice interval between each one. Westerns is a perfect analogy, anyone and everyone was coming out with Westerns, and half the movies out there were Westerns, and the people just got tired of them. Later, after years had passed, the scifi genre successfully copied the Western model and it proved to be very profitable, and to produce some really good franchises.
I don’t think there is any SARS specific issue anymore. At this point, that’s just an excuse used by under-performers.
This one is one of my all-time favorite franchises. And I was indeed disappointed with what they did in the last film. I agree that anyone with the right look and attitude can be Jones. Maybe Idris Elba if he doesn’t take over as Bond. The Indiana Jones Experience at Hollywood Studios is one of my favorites, and we make sure to see it each time we are at the parks. I remember in previous years, that it had a huge line to get in, and every show had every seat filled. But more recently, that’s not the case. The huge lines have thinned out, despite the parks being at full or near-full capacity. Seems like “kids today” (and many adults today) are more interested in the more interactive experiences, and being closer to the action. Disney obviously has all the data, and if they see a waning of interest, they will decide how to proceed. But despite it all, the 2023 installment still brought in $175M at the box office. I think that’s still respectable enough to strongly consider continuing the franchise.
All the streaming companies now have the same problem. They’ve reached saturation. “Everyone” streams, and “everyone” has more than one service. That essentially means that growth can mostly come from one streamer to another streamer. And that results in churn which reduces average subscriber numbers. Also, because the service becomes commoditized to some extent, they also have to compete on price (“give plenty of discounts” to get people in), and that reduces ARPU. Slow growing subscriber numbers and even slight reductions in ARPU aren’t conducive to growing that business segment. Disney is VERY lucky that it has other business segments to balance streaming out. In fact, that is Disney’s biggest strength, their 3 legged, or 4 legged, stool.
That’s very interesting info about the Jones attraction. I assume that just goes to show that time moves on, and what to me still seems like a vibrant character/series is just not on the radar of the younger generations, especially the T-tok crowd. I think Elba would make a great Jones, although he, like anyone else in his league, would be expensive. I wouldn’t mind seeing new Jones adventures with a different actor each time for a few years, just to keep costs down, or a total unknown, maybe an actor starting out a career after being incubated at Disney Channel.
I think with movies, and this goes to streaming too, the big problem, aside from what you correctly mentioned about ARPU, is cost of talent. How does that get reduced? It seems people need their stars, not just a solid story. I read that the “Joker” sequel has a $200 million budget, and I would have to assume a lot of that is above the line. Too bad WBD (which I own) didn’t try as an experiment to keep the budget the same as the previous one, just adding on the cost absolutely necessary for Phoenix and the director (maybe the studio should not have used Gaga and used an unknown instead). Supposedly an insider in a Variety article mentioned that Zaslav wants to pay a lot for top talent, including the recent Cruise deal, so that talent essentially can be used to catalyze a transaction once the lock-up from the Morris trust expires in a couple months.
Great analysis on the industry on your part…these streaming wars get more and more interesting as they age…someday I hope they make a movie about them in the same style as “Social Network” or “Big Short”…
