Just months before the global pandemic, Walt Disney (NYSE:DIS) announced its new streaming service, Disney+. It couldn’t have come at a better time, but it’s not all sunshine and roses for the House of Mouse as box office sales have fallen off a cliff. How should investors think through these puts and takes for the company’s top line? On a Fool Live episode recorded on March 31, Fool.com contributors Toby Bordelon and Brian Withers talk about how Disney’s movie studio segment is responding to the coronavirus pandemic and what investors should be looking at in the quarters ahead.
Toby Bordelon: So big news from Disney, I guess you’d call this big news. They’re delaying the release of Black Widow another couple of months. It was meant to come out in May and that itself was a delay from last year, they pushed that back into July. The interesting thing here is, that’s going to be a simultaneous release in theaters and Disney+. This is something Warner has done, Warner Brothers is doing with some of its movies, they’ve released them on HBO Max. But Disney is going a little different here. They are charging a fee for these. So just because you’re a subscriber, you can’t automatically watch it, you’re going to pay 30 bucks to watch Black Widow if you want to see it on Disney+ the day it comes out. They do the same thing with Cruella, I think which is scheduled for late May, and they did that with Mulan earlier last year. We saw that.
I don’t think that we’ll have a choice here. We’re not quite ready for people to flock back in early May for big blockbusters, hopefully, we will be by July. But the reason they can do this is because of the massive success of Disney+, 100 million subscribers in a year. That is phenomenal. So it’s not like you’re missing out a huge audience when you do this. You just got a price increase on that, a dollar a month, they pushed through, last month. I think this is fine for me.
If you look back at their earnings, you look back at their revenue mix prior to the pandemic, theatrical releases were actually three out of four in terms of their revenue segments, and it was less than half of theme parks. So it’s not like getting people in their theaters, is huge for them. What they really want to be focusing on, I think, is Disney+ and bringing people back in the theme parks. Doing a simultaneous release I think is going to be an interesting way to do that. Q1 earnings coming May 13.
But really what I want to see is going to be the Q2, Q3 earnings. I don’t know if they’ll give us this information, but I really would love to see the breakdown in revenue between what they get in the theaters from Black Widow and what comes through on Disney+. This little experiment we’re running, I think they would have preferred not do this experiment, but we’re doing it, that’s where we are. If we get that information, that will be interesting to see.
Brian Withers: Yeah, I love this Disney+ story. They came out with it, what, October 2019 and they’re already at a 100 million subscribers. Just for comparison sake, Netflix is a little more than 200 [million subscribers]. So to get up to half a Netflix in the time that Disney has done is, absolutely amazing. But you know what?
I don’t know that the COVID thing is really the whole reason here. I think parents and Disney lovers have been waiting for this for a really, really, really long time. When they finally announced it and it was coming out, I think people were just ready to hit the buy button and get it as part of their household. I think this is a great tuck-in for Disney. They continue to just monetize their content across all sorts of different platforms, toys, parks, follow-on TV series, Disney+. This is just an entertainment powerhouse.
Bordelon: Yeah. It definitely is. I think, before Disney+, whenever we got a new streaming service, the question was always, how are they going to do relative to Netflix? I think now with the new streaming service, you’ve got to throw Disney+ in there. That’s the new metric. Can you do what they’ve done in the year and can you continue to grow like they’ve done? It’s legit, do you need anything other than Netflix or Disney+? That’s where we are today.
Withers: I don’t think anybody else could’ve done like Disney+ has done.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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