Disney – Earnings Analysis & Disney+ Update – 17 May 2019

What is your industry-wide overview of the direct-to-consumer streaming services, pulling out 2-3 key trends or drivers you think investors should be paying attention to?

How should we assess Disney’s scale, and what is the subsequent impact of being a late mover? How long might this be a relative disadvantage to the company, in terms of it trying to catch up on the scale side of things?

How should we measure the total addressable market for Disney+, whether that’s in the form of households with children or how many Disney, Marvel and Star Wars fans there are, or any way you think would be more efficient to frame that TAM?

When all these secular trends play out, what is Disney’s subsequent earnings power? Would you say that the potential improved margins from a digital product set and the potential for new markets that D2C opens for it will outweigh some possible subsequent cannibalisation in licensing and pressures on sports viewership, as well as the likely need for an increased scale of investment in original content required? Do you think this is an NPV [net present value] positive or negative strategy moving forward?

Disney had an investor day recently and provided information about its upcoming launch for the Disney+ platform coming in Q4 2019. What are your high-level thoughts of what we saw and your expectations for the rollout?

How fast should Disney grow on a sales or earnings basis across periods? Will earnings go down first or remain flat and then grow later, or what are the possible inflection points?

You mentioned that November seems like a smart timing to roll out based on peak TV time. Is it safe to presume that there could be some strong sales figures from Disney+, at least in the immediate time after the rollout, and that it might taper off ? How should we assess cadence over 2020, getting into those seasonality factors further?

Could you walk through the timing of potential price increases and share your thoughts on the proportion of subscribers that are probably more in that price-sensitive bucket? How would that correlate to a churn risk that would likely occur once price increases were put into effect?

What are your thoughts on the fairness of the subscriber estimates? Management has pointed towards 60- 90 million subscribers globally by the end of 2024, with an expectation of a third of that being the US and two- thirds from international markets. Do you think this is achievable? What are some of the major execution risks to consider in terms of where that might fall short?

What do you see as the main cannibalisation risks for Disney+? There is a licensing revenue loss risk that we should be considering. What is that going to look like over the course of the next few years? Is there going to be any sort of inflection based on expectations for Disney pulling content, and what does that correlate to as a break-even point that Disney may be considering, in terms of what it is getting taken off the table by moving to a D2C platform?

On a business overall perspective, is Disney going to have free cash flow per share growing materially over the next 5-10 years, taking into account those synergies that you’re alluding to, and factoring in some shifts that we can expect in the cost base as it is switching to the D2C? If yes or no, then why?

How do you expect original content spending to grow relative to subscriber revenue? You mentioned that the cost of production is continuing to go up. Can you provide more colour on how we should expect that to trend moving forward? You also mentioned that it should stabilise at a certain point, so how long until that happens?

What is your outlook for 1-3 years and 5-7 years out? How is it going to shape out for Disney, in the form of a best and worst-case scenario?