The Walt Disney Company (NYSE:DIS) is reportedly in the early stages of exploring options to sell or find a joint venture partner for its India digital and TV business. The move is part of Disney’s ongoing strategic evaluation of its operations in the region. Although no specific buyer or partner has been identified yet, discussions are taking place within Disney’s headquarters in the United States as executives deliberate on the best course of action. This signifies Disney’s willingness to adapt and optimize its business operations to align with evolving market dynamics. The company has engaged with at least one bank to explore potential avenues for growth in its India business while sharing associated costs, indicating a proactive approach to seek partnerships or arrangements that can drive growth while mitigating financial burdens. The outcome and direction of these discussions remain uncertain but hold importance as they may shape the future landscape of Disney’s presence in this significant region. Disney stock has dipped by 2.6% year-to-date.
Transitioning to Streaming Amidst Challenges
Disney, like its competitors, is undergoing a costly and transformative phase as it navigates the shift from traditional TV to streaming. In response to macroeconomic challenges impacting advertising revenue and subscriber growth, the company is actively cutting costs. CEO Bob Iger, leading the changes, had his contract extended through 2026 to allow ample time for transformative measures and grooming future leaders within the company.
A key consideration for Disney is the evaluation of its portfolio of TV networks, including ABC and ESPN. Bob Iger has expressed openness to explore options for the traditional TV business, including the possibility of selling certain networks while retaining others, acknowledging that networks like ABC may not align with Disney’s new business model. ESPN, as a cable TV channel, is being approached differently, with Disney open to exploring strategic partnerships or ownership stake offloading to address challenges faced by the sports network. CEO Iger, who had previously expressed concerns about the future of traditional TV, has found the situation to be more challenging than anticipated since his return to Disney.
While the linear networks segment, encompassing TV properties like ABC, National Geographic, FX, and FreeForm, has faced growth challenges, it still remains an integral part of Disney’s business, evident from the positive operating income reported in fiscal 2022. However, potential sales of TV assets may impact Disney’s profitability and will require careful monitoring by investors.
The broadcasting landscape is undergoing significant shifts, with uncertainties surrounding its future and changing consumer preferences. Although linear television channels are not expected to disappear immediately, their viewership continues to decline as audiences increasingly favor over-the-top (OTT) platforms. This shift represents a fundamental trend shaping the industry, with subscription video-on-demand (SVOD) services expected to continue growing alongside targeted advertising.
As streaming continues to rise, pay-TV providers in the United States faced substantial subscriber losses in the first quarter of 2023. Analyst estimates indicate a collective shedding of 2.3 million customers during this period, with the total penetration of pay-TV services in occupied U.S. households dropping to its lowest point since 1992. Cable TV operators experienced a 9.9% decline, and satellite providers DirecTV and Dish Network registered subscriber losses of 13.4%. Amidst this challenging landscape, Disney is implementing significant cost-cutting measures, aiming to save $5.5 billion through reductions and layoffs while focusing on making Disney+ and Hulu more profitable. Disney intends to enhance Hulu integration, considering it a crucial component of its transition from TV to a streaming-only model. Negotiations with Comcast over Hulu’s valuation are ongoing, with plans to offer a combined Disney+ and Hulu packages to consumers by the end of the year. The fate of ESPN+ and Disney Channel, as well as Disney’s plans for other cable channels, remains uncertain, but CEO Iger anticipates ESPN’s eventual transition to a streaming-only model, recognizing the disruptive nature of the traditional TV business model.
Challenges in the Indian Market
Discussions surrounding Walt Disney’s TV and streaming business in India come at a crucial time as the company faces intensified competition and significant challenges in the market. The emergence of Reliance Industries‘ JioCinema streaming platform, which secured digital rights for the popular Indian Premier League cricket tournament, posed a substantial threat to Disney’s dominance in India. Reliance’s freemium model, offering free access to the tournament, resulted in a significant decline in Disney+ Hotstar subscribers, a popular streaming service under Disney’s India business.
Furthermore, Viacom18, backed by Reliance and Paramount Global, challenged Disney’s market position in India through its partnership with Warner Bros, securing content rights to popular HBO shows. Reliance’s JioCinema, with its ample cash reserves, focuses on subscriber growth without immediate monetization strategies, posing a formidable threat to Disney’s current position. The loss of streaming rights for the IPL, combined with a subsequent decline in paid subscribers, had a profound impact on Disney’s reputation in India in the first quarter of this year.
While Disney+ Hotstar emerged as the dominant player in premium video-on-demand (VOD) in India in 2022, a report by Media Partners Asia highlights a significant market shake-up following the rise of JioCinema. JioCinema experienced substantial growth by offering free live streaming of the IPL cricket tournament, resulting in a surge in consumption and dominating the premium VOD category. The sustainability of JioCinema’s growth in the absence of IPL action after June 2023 remains uncertain. This development raises questions about the growth challenges Disney-owned brands may face in India.
Disney Star, formerly known as Star India, is expected to experience a significant revenue drop for the fiscal year ending September 2023, accompanied by a decline in EBITDA. Additionally, Hotstar is estimated to lose 8 to 10 million subscribers in its fiscal third quarter.
Finding a buyer for Disney’s India business is expected to be challenging due to high valuations, intense competition, and a declining subscriber base.
Disney Stocks Valuation Is Attractive
The current valuation of Disney stock is considered attractive, with the company’s streaming business having substantial growth potential internationally while its brand assets continue to drive revenue. The future of Disney’s linear networks segment is poised for major changes, which could trigger a positive market response. However, a significant divestment of TV assets may impact profitability in the short term until the streaming business scales enough to replace lost revenue. Monitoring new developments will be crucial for investors to identify potential turning points in Disney’s trajectory.
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