Disney stock: Disney’s 2023 Strategy
As 2022 comes to a close, big media companies will have a hard time making money in 2023. This is because more streaming TV services will be competing for advertising dollars.
That’s what Bank of America analyst Jessica Reif Ehrlich says. Despite the fact that the future is “not clear,” she claims that the ad market will remain volatile in 2019 due to a few factors that will particularly affect the streaming industry.
These factors include how companies make up for lost revenue and the ongoing shift of ad budgets from traditional TV to streaming platforms.
According to Ehrlich, the transition of ad spending from “linear viewing” to streaming services, the emergence of “retail media networks” like Amazon (NASDAQ:AMZN), and new ad-supported streaming options will all “increase wallet share of advertising budgets.” Traditional linear advertising will suffer as a result.
Many media companies are trying out ad-supported streaming. Ehrlich believes that if they don’t make significant changes to their advertising loads, “we remain skeptical that they will be able to fully recoup lost linear advertising dollars on a one-for-one basis” in the long run.
One company that Ehrlich brought up that stands out, but not in a good way, is Disney (NYSE:DIS). Recently, the media and entertainment company was rocked by the abrupt termination of CEO Bob Chapek and the two-year employment agreement signed by former CEO Bob Iger. Investors and the media sector “celebrated” Iger’s return, according to Ehrlich, and she referred to him as “a strong, all-around, and charismatic leader.” Disney stock rose in the days following the news.
On the other hand, Ehrlich said that “restoring the magic at Disney may take a while” because Iger has to make many strategic and operational decisions that will affect Disney over the next few years.
These choices include how to restructure the Disney Media and Entertainment Division (DMED), which includes Disney+, how to alter price increases at Disney theme parks, what Hulu options to provide, and whether or not to spin off ESPN and other linear TV networks owned by Disney.
Ehrlich anticipates Iger to act swiftly on restructuring, which could result in the departure of additional management, as Iger did with Kareem Daniel, the former CEO of DMED, in one of his initial moves after returning to his position as Disney’s CEO. Ehrlich thinks Iger will take more time to think about other things before making significant changes to the company’s strategy.
Ehrlich said, “We expect Iger to look at all of these options with care.” “It could be a few months before we know more about what he wants to do in the long run.”
Content spending is still a big problem for media and entertainment companies. Still, Ehrlich says it is “moderating” because Netflix (NASDAQ:NFLX) and other media companies have said they are cutting their budgets for content. Ehrlich said, “We think inflationary pressures on content spending will last until 2023.” “Which suggests that keeping the same budget for content year after year means either less content or a switch to cheaper content options.”
Sports rights are one area where people will likely want a lot of content. According to Ehrlich, evidence that “demand for sports should remain strong for the next few years” includes Apple’s (NASDAQ:AAPL) new exclusive deal to stream Major League Soccer matches as well as Amazon’s purchase of Thursday night NFL games.
Because there are so many moving parts, according to Ehrlich, the media sector is “getting closer to the tipping point” of a new wave of corporate consolidation. Ehrlich said, “It’s hard to predict exactly when a transformational deal will happen,” but he said one company could start a wave of buyouts and deals.
Ehrlich said, “Depending on where Bob Iger goes, we think that Bob Iger’s strategic vision for Disney could be a possible catalyst.” “The resulting upheaval would almost certainly have a domino effect on the industry as a whole.”
Disney’s recent annual business report hints at where it might be going. Disney stock is down nearly 38% year-to-date.
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