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2019 company trends: Disney adds to its riches

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This article is part of a series looking at six companies that stood out in 2019 for under- or over-performing. It contextualises some of the related trends and events with insights gathered during Third Bridge Forum’s Interviews with industry specialists. We also covered Thomas Cook, Boeing, PG&E, Sealed Air and Babylon.

The Walt Disney Company unlocked a treasure trove of opportunities in 2019 after completing its acquisition of 21st Century FOX assets and launching its highly anticipated streaming service, Disney+. 

The moves solidified Disney’s position in the direct-to-consumer (D2C) space and bolstered its notorious library of content. When the company unveiled its D2C strategy at its 2019 Investor Day, its share price shot up from USD 116.60 to USD 130.06 the next day. 

An expert interviewed by Third Bridge Forum in May last year believes there are few companies with the scale of content awareness and fandom as Disney. The strength of Disney’s storytelling and global recognition of its characters has “never been higher” with the rise of the Marvel Cinematic Universe, incorporation of FOX assets, continued power of Pixar titles and retelling of Disney classics.

Internationally, Disney may even have better prospects than rivals Netflix and Amazon because of the power of its brand and diverse revenue streams. With four main ones — media networks; parks, experiences and products; studio entertainment; and D2C and international — Disney’s broad reach creates a “virtuous cycle” of opportunities.

The company’s D2C efforts reflect shifting competitive dynamics across the video streaming and wider entertainment industry, as technology continues to transform viewing habits. Distribution is “no longer a choke point” in the value chain and the growth of streaming services has resulted in “unlimited shelf space”. As a result, distribution companies are increasingly defined by their own proprietary content. “Netflix started that, Amazon followed it and now Apple’s coming to the same game,” another specialist said. As a well-established content owner and producer, Disney’s move into distribution was a natural reaction to these changes. If content is king today, distribution is seemingly queen

The company’s USD 71bn acquisition of FOX assets was one of the biggest media mergers to date. At a time of dynamic change in the entertainment industry, the marriage enables Disney to expand its D2C offerings and international presence as well as deliver more personalised and compelling experiences. The deal added popular names including X-Men, Avatar, The Simpsons and FX Networks to Disney’s ranks and gave it a controlling stake in streaming player Hulu. 

Consumers and investors certainly cheered when Disney+ was unveiled in November 2019. With 31 million downloads, it was the most downloaded app in the US in Q4 2019. Rivals Hulu and Amazon Prime Video were downloaded approximately 7.3 million and 6 million times respectively.1https://go.sensortower.com/rs/351-RWH-315/images/Sensor-Tower-Q4-2019-Data-Digest.pdf?src=landing-page Shares in the company also shot up from USD 138.58 on 11 November to USD 148.72 when it launched on 12 November. Disney plans to roll out Disney+ to nearly all major regions of the world within the next two years. Its next stops will be in Europe in March 2020. 

Despite the strong momentum, even Disney will need to ensure it can continue to rise above the noise of an increasingly crowded market. Indeed, the global video streaming market was valued at USD 36.64bn in 2018 and is anticipated to expand at a CAGR of 19.6% from 2019 to 2025.2 https://www.grandviewresearch.com/industry-analysis/video-streaming-market Although there are nuances to the business models of each player, customer engagement is going to be critical to the success of them all. Gathering data to ascertain how customers are engaging with Disney content will be the company’s biggest near-term objective. 

Another “unproven muscle” for Disney is its ability to create original episodic content — which is what keeps churn low in the world of streaming — and at the same pace as its rivals. There is also the question of how much of Disney’s US formula, which has reigned supreme for decades, will need to be adapted to appeal to viewers in other parts of the world. Similarly, not all externally sourced content will align with the iconic Disney brand, which is where Netflix and Amazon seemingly have greater flexibility. 

Whether Disney has the production capabilities to scale efficiently when it has historically produced more expensive “super-premium content” in longer time frames remains to be seen. However, one expert is optimistic that this is Disney’s time to “really start moving up that curve”. 

Overall, specialists were upbeat about Disney’s progress in 2019 and what’s in store for the company in 2020 and beyond. Although it was relatively late to enter the D2C market, Disney+ has been very well received. In addition, its 60% stake in Hulu helps to hedge its reliance on Disney+ from an SVOD market perspective. With the whole industry forging ahead into relatively “uncharted territory”, we are still only in the earliest chapters of this story. We see Disney+ and Disney having significant momentum to start 2020, and believe the increasing popularity of its franchises and offerings will support even further interest and growth.  

Read other articles in the series on Thomas Cook, Boeing, PG&E, Sealed Air and Babylon.

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