DIS Walt Disney Co

By Dan Gallagher 

Walt Disney Co.'s first direct foray into streaming has been an undeniable hit. Even the Magic Kingdom might be hard-pressed to keep the spell going.

Disney gave an early peek into its latest plans during its fiscal-third-quarter call on Tuesday. Citing rapid changes in consumer behavior, Chief Executive Bob Chapek said the company plans to launch an international streaming service next year under its Star brand, which it picked up through its 2017 acquisition of 21st Century Fox. That service will feature content from across the company's now broad library, ranging from sources such as ABC, Fox, FX and Searchlight. Disney said it would share more details about its plans for the service and its other streaming initiatives at an investor day, which it expects to take place in a few months.

Disney used its previous investor day last April to reveal its plans for the launch of Disney+, including its price. That lit up the stock, leading to a gain of 32% for the full year -- Disney's best annual performance since 2013.

So investors are naturally hoping for more of the same. Disney's share price jumped nearly 9% Wednesday, driving up the Dow Jones Industrial Average. Michael Morris of Guggenheim Securities upgraded the stock to a "buy" rating, writing that the announcement of the coming meeting "will likely punctuate another sentiment tailwind." Noting "the wealth created for those that bought Disney ahead of the last day," Michael Nathanson of MoffettNathanson said Disney's shares would likely keep grinding higher ahead of this year's event.

The rub is that Disney looks like a very different company today. Last year's streaming launch was additive to a business that was already firing on nearly all cylinders. Revenue was riding toward a record high as the company's theme-park and movie segments were growing. Both have since taken a hard hit from the pandemic, with the loss of live sports and accelerated cable-cord cutting acting as a weight on the company's media-networks business. That leaves streaming as one of the few things going well for Disney right now. Naturally, the company is emphasizing it.

The other problem is that the new Star service might not have the same appeal as Disney+, which benefits from the strong, defined brand of its parent company. Mr. Nathanson said that, compared with Disney+, "Star will require more content, more marketing and more wholesale relationships." Todd Juenger of Bernstein predicted "sizable required investments" -- the biggest of which could be foregone revenue from licensing the content that will end up on the service. Disney has no doubt shown a deft hand at streaming. Media investors should know by now, though, that sequels usually don't measure up to the original.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

August 06, 2020 07:14 ET (11:14 GMT)

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