The Walt Disney Co. on Thursday will seek to quell mounting questions over the future of the company at the entertainment giant's first major shareholder meeting since closing a transformative $71.3 billion deal to acquire key 21st Century Fox assets.
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Investors, analysts and others are clamoring for updated earnings guidance from the Burbank, California-based company post-transaction, as well as any hints from CEO Bob Iger on how Disney plans to integrate the new additions into its existing businesses, succession plans after his contract ends after 2021 and if the firm will restart its share buyback program.
But front-and-center will be “Disney+,” the new streaming service that will pit Disney’s lucrative content library and acquired intellectual property from Fox against legacy players like Netflix and Amazon, as well as new entrants including AT&T, Apple and Comcast.
"If there is near-term downside in the shares, we believe it is likely to be driven by changes to core Disney’s fundamentals...and we think this is a low likelihood," BMO Capital Markets analyst Dan Salmon wrote in a recent note.
Disney has indicated it will price the initial monthly cost for its platform lower than Netflix. Analysts expect the service to be able to draw as many as 30 million subscribers by 2021. But turning a profit will be more difficult, as experts say Disney appears more concerned with scaling the initiative than earning money on the endeavor.
There also remains the question of how much Disney will lose by removing licensed content from other platforms, as well as how it will manage a new majority stake in Hulu.
The Hulu stake “brings immediate streaming scale to the company, but also significant losses,” Morgan Stanley analyst Benjamin Swinburne wrote in a recent note. “We hope Disney articulates a growth strategy at Hulu, including its latest thoughts on launching internationally.”
Overall, analysts expect the direct-to-consumer video segment could lose as much as $3.8 billion in 2019, with loses declining over the next several years.
Compounding the challenge the company faces is the expected wave of new competitors.
“We worry that consumers might start to churn from one to another, rather than remaining subscribers throughout the year,” Cowen Inc. analysts wrote in a recent note. “Consumers might take one service for a month, binge watch its content, and then switch to another service the next month.”
Iger previously told investors the company was confident its “iconic brands and franchises will allow us to effectively break through the competitive clutter and connect with consumers.”
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Some analysts also remain concerned over the integration of the newly purchased Fox assets, which includes the 20th Century Fox film studio. The merger is loaded with risks due to “the cultural differences between the two firms and the size of the acquisition,” Cowen analysts wrote. Among the initial casualties of the deal could be Blue Sky Studios, Fox’s animation studio.
Despite those concerns, Disney has a number of initiatives with significant earning potential to tout to investors.
Its film line-up in 2019 is easily one of, if not the, strongest in the movie industry. Released last month, “Captain Marvel” has already grossed more than $1 billion at the box office. The pending “Avengers: Endgame” is breaking online ticket pre-sales records, while expected blockbusters like “Lion King,” “Toy Story 4” and “Star Wars: Episode IX” all come out later this year.
The pending release of “Frozen 2,” as well as the new Star Wars film, should also help boost lagging sales in Disney’s consumer products division. The original “Frozen” film underscored a 12 percent growth in merchandise revenue, Cowen said.
The company is also preparing to launch two new “Star Wars” theme lands. Part of a $2 billion investment in its parks, Galaxy Edge will launch at California’s Disneyland on May 31 and Florida’s Disney World on Aug. 29.
While the U.S. economy remains strong, some analysts are skeptical of the potential revenue growth in Disney’s theme park division given concerns over a pending recession.