Disney Stock Price Now at the Mercy of Streaming

Over the past 12 months, the Walt Disney Co. (NYSE: DIS) stock price has dropped by more than a third. Like many other blue-chip stocks, most of the drop has occurred since mid-February. That was when the impact of the coronavirus outbreak was finally elevated from a China problem to a global one.

Less than a month after Disney announced that Robert Chapek, a 30-year company veteran, would replace former CEO Robert Iger, the company closed theme parks and canceled new movie releases. That was in response to governmental restrictions on social gatherings.

Total box office receipts for the weekend of March 13 through 15 came in at just $54 million, the lowest weekend total in two decades. Live-action feature films of “The Little Mermaid” and “Mulan,” both big animated hits for the company, have been postponed. Disney-owned Marvel Studios has also delayed the release of “The Black Widow,” and production work on several other films have been halted also. Lacking both patrons and new films, U.S. movie theaters essentially have closed their doors.

In a filing with the U.S. Securities and Exchange Commission on March 19, the company also said that it had closed its theme parks and suspended cruises and theatrical shows. Disney also acknowledged that it had no idea when the company’s operations would return to normal.

Disney’s ESPN sports network now has to depend on talking about what could have happened in the college basketball championships and what might happen in Major League Baseball if the season ever begins. That may attract fanatics, but not casual fans in the numbers that put up big advertising revenues for Disney.

The Spotlight Falls on Streaming Services

With more than 100 million Americans now advised to stay home as much as possible, the stage is set for boom times for the new Disney streaming service, Disney+.

The company has priced its service below its two main rivals. Buying Disney+ for a month costs $6.99. The Netflix Inc. (NASDAQ: NFLX) “standard” plan and Inc.’s (NASDAQ: AMZN) Prime each cost $12.99 a month. Prime streaming is available as part of a Prime membership, which costs $119 annually.

At the end of the fourth quarter, Amazon Prime had more than 150 million subscribers, according to the company’s earnings report. Netflix has 167 million worldwide.

Disney+, which launched in November, had more than 28 million subscribers by the beginning of February. A report in Deadline cited a study by U.K. research firm Ampere Analytics reporting that half of U.S. households with children under 10 already subscribe to Disney+. The firm also noted that 55% of all U.S. subscribers are between the ages of 18 and 24.

As more schools close across the country, Disney+ subscriber numbers are rising fast. According to streaming analytics firm Antenna, new Disney+ subscribers over the weekend of March 14 to 16 rose by 212% compared with the previous week.

By contrast, Netflix posted a new subscriber gain of 47% over the same period, not so bad considering the industry leader has more than 61 million paid U.S. subscribers. If there was a disappointment among new sign-ups it had to be Apple Inc. (NASDAQ: AAPL). Apple TV+’s new subscriber count rose by just 10% in the same period.

Don’t Forget Hulu

When Disney acquired the movie and TV studios of 21st Century Fox, it already had a controlling stake in streaming video service Hulu. Last May, Disney paid Comcast Corp. (NASDAQ: CMCSA) $5.8 billion for the remaining portion of Hulu.

Disney’s plan for the Fox studios was to keep them focused on content ordered by Disney. Productions in the works for Fox dropped from five to one between July 2019 and January 2020, according to Ampere. Disney has commissioned the Fox studios to produce three projects for Disney and three for Hulu.

Ampere also notes a shift in where Disney-commissioned projects for Hulu are being produced: “[T]he role of producing content for Hulu appears to be shifting from Disney’s production labels to Fox’s. Disney’s Hulu commissions have fallen from three to one, while Fox’s Hulu commissions have done the opposite, increasing from one to three.”

At the end of the fourth quarter, Hulu had 30.4 million subscribers, but only 3.2 million subscribers to its Hulu + Live bundle. That’s not a threat to the cable and satellite companies, but it was nearly double the number of Hulu + Live subscribers from a year earlier.

Hulu + Live offers two subscription plans: an ad-supported and an ad-free subscription. Prices range from $44.99 to $54.99. For households with high-bandwidth internet service, that’s more than competitive with similar cable and satellite packages.

Time will tell if Disney pushes Hulu + Live hard enough to drive the subscriber count much higher.

As everywhere in the streaming marketplace, there’s no lack of competition. Alphabet Inc. (NASDAQ: GOOGL) has a YouTube Live package priced at $49.99 a month. Sling TV, from Dish Network Inc. (NASDAQ: DISH), charges $30 to $45 monthly for different live packages. AT&T Inc. (NYSE: T) offers DirecTV Now in packages ranging in cost from $65 to $135 a month. There are others as well.

The longer U.S. coronavirus-inflicted restrictions on gatherings apply, the more people who will sign up for pay TV. An added bonus for streaming services is that some movies that had only been available in theaters before are now also becoming available sooner on streaming services. The new Universal/DreamWorks animated film “Trolls World Tour” will open on April 10 in theaters and on-demand in homes. A handful of other first-run movies have moved to on-demand as well, now that theaters are closed.

Theater operators have resisted simultaneous release in theaters and at home (called day-and-date in the industry). Now movie makers are being forced to try it out. This could work to Hulu’s advantage and help it boost its audience after every kid in America has persuaded parents that Disney+ is a got-to-have.

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