Disney's Beating Continues

Disney may be the most widely written about public company over the last two weeks. Most of the coverage concerns its battle with Florida’s governor Ron DeSantis. Shareholders have a much larger problem, however. The stock has underperformed the market by a great deal.

Disney’s stock is down 14% in the last month. The overall market is flat.

Disney’s problems are of its own making. Long-time CEO Bob Iger returned last November. He replaced Bob Chapek, who the board viewed as a bumbler. In reality, the core of Disney’s recent financial trouble was born when Iger introduced Disney+, a new streaming service, in November 2019.

Iger’s theory was to underprice Disney+ to gain market share rapidly. It worked at $6.99 a month. The subscriber count reached 165 million recently and then started to drop back modestly. In the meantime, low subscription pricing drove losses into the billions of dollars. Iger increased prices to $10.99 a month recently. That is still below the price of Amazon Prime Video and Netflix, the two market leaders. In other words, Disney+ may not post returns on its original investment for many years financially. (These are the cheapest streaming services in America.)

Iger may have planned for a crowded streaming market, but it swamped the Disney+ launch nevertheless. People will pay for, by several estimates, an average of three streaming services. Amazon and Netflix are often the first two. There are another dozen services with tens of millions of subscribers each. Disney+ has to elbow its way, often in that third spot. Among the most well-funded of these is Apple+. It is late to the market, but Apple can offer it to billions of people with iPhones and Macs. And Apple has access to an almost limitless pool of cash.

Disney has a mixed bag of divisions. Its theme parks continue to be the company’s profit engine. Its traditional TV products, including ABC and ESPN, operate in a world where traditional TV use is faltering.

If Disney needs Disney+ to be a successful division to get its shares back on track, investors will have to wait a long time.

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