Long Live The King? Disney Takes Streaming Into Its Own Hands

For a time, Walt Disney Co DIS was content to share the wealth of its popular portfolio. But now it’s scrapping middlemen and taking distribution into its own hands.

The company announced Tuesday its plans to launch ESPN- and Disney-branded over-the-top services in 2018 and 2019, respectively.

In the short term, the strategy could limit shareholder profits, according to UBS analyst Doug Mitchelson. He lowered his annual earnings-per-share estimates when considering Disney’s increased stake in streaming supporter BAMTech, lost revenue from content sales to Streaming or Subscription Video on Demand (SVOD) services, and decreased revenue from advertising.

Disney’s immediate pain may just be the start of widespread industry distress.

See Also: Disney Vs. Netflix: Content Is King As Big Media Seeks To Capture Cord-Cutting Consumers

Line Of Fire

The firm’s announcement is certainly a negative for Netflix, Inc. NFLX, which will lose access to Disney and Pixar content in 2019 and may see increased competition for viewership.

Baird Equity Research considers the latter a greater concern but notes a bright side: Netflix’s retained rights to Marvel shows, continued access to Lucasfilm content, breadth of offerings and investment in original productions.

Collateral Damage

Disney's OTT platforms might also accelerate cord cutting and ultimately hurt video distributors like Comcast Corporation CMCSA, Charter Communications, Inc. CHTR, DISH Network Corp DISH, Verizon Communications Inc. VZ and AT&T Inc. T.

However, “that could be recouped through broadband positioning,” Baird analysts William Power and Charles Erlikh wrote in Wednesday's note.

Potential Beneficiaries

Disney’s move isn’t bad news for everyone, though. The use of BAMTech’s direct-to-consumer technology may bode well for Akamai Technologies, Inc. AKAM.

“Akamai has partnered with BAMTech in the past to help deliver content, and could be positioned to benefit from an increase in BAMTech driven OTT traffic, though just initial speculation on our part,” Power and Erlikh wrote.

Effects on Apple Inc. AAPL remain unclear, but the best case scenario sees Disney listing the streaming option on Apple TV. Conversely, a competitive service might challenge the firm to invest in original content.

Valuations

UBS lowered its price target on Disney from $130 to $126, while Baird offered a $175 target on Netflix.

At time of publication, Disney was trading down 5 percent at $101.75 and Netflix down 2.5 percent at $174.

Posted In: Baird EquityBaird Equity ResearchCharles ErlikhdisneyDoug MitchelsonESPNLucasfilmMarvelUBSWilliam PowerAnalyst ColorPrice TargetTop StoriesAnalyst RatingsTech

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