Selling Sky Helps Disney (DIS) Take On Netflix, Amazon & Apple

Disney DIS shares popped again Thursday one day after the entertainment powerhouse agreed to let 21st Century Fox FOXA sell its 39% stake in European pay-TV giant Sky to Comcast CMCSA. Disney CEO Bob Iger not too long ago called Sky a “crown jewel” of its Fox deal. But the move helps Disney better compete against Netflix NFLX, Amazon AMZN, and Apple AAPL in its streaming future.

The Deal

Comcast officially outbid Fox to take control of Sky SKYAY over the weekend, with Comcast offering $22.59 a share—valued at $38.8 billion. This marked over a 40% premium to the cable and internet power’s February offer. Shares of Disney jumped Monday on the back of this announcement.

Wednesday’s decision by Disney to let Fox sell the remaining stake in Sky was also met by investor applause. Disney didn’t have any great interest in keeping a minority stake in the European TV company. And now Disney is free from the burden of having to operate an entirely new business at a time when the traditional television industry is in flux.  

The valuation of Fox’s Sky stake sits at roughly $15 billion. Not landing Sky will also reduce the amount of debt Disney has to take on. Disney said in a company statement that the move allows it to “expand its considerable investment in the Disney-branded direct-to-consumer offering launching in late 2019 and the new ESPN+ sports streaming service, and will seek to increase investment in Hulu’s content offerings and international distribution.”

Disney’s deal with Rupert Murdoch’s company still sees it land Fox’s movie and TV studios as well as other international properties, not to mention its 30% stake in Hulu, among other assets. Reports have now surfaced that say Comcast might consider selling its 30% stake in Hulu to Disney, which would give Disney 90% ownership of the streaming platform—AT&T T owns the remaining10%.

Disney made its Fox deal to help secure a more stable future in a streaming age where content ownership and digital distribution are paramount. “Along with the net proceeds from the divestiture of the RSNs (regional sports networks), the sale of Fox’s Sky holdings will substantially reduce the cost of our overall acquisition and allow us to aggressively invest in building and creating high-quality content for our direct-to-consumer platforms to meet the growing demands of viewers,” Iger said in a statement.

 

 

Streaming Future

Just last week Disney announced that its new ESPN+ streaming service reached over one million paying subscribers. The growth of the $4.99 per month stand-alone streaming platform since its April launch is a great sign for Disney.

Investors should note that ESPN+ doesn’t feature ESPN’s premier content, such as Monday Night Football, NBA basketball, or big-time college football and basketball. These high-profile offerings will likely be available down the road—on a completely stand-along ESPN platform—when ESPN and its various partners work out what to do as linear TV continues to suffer.

Instead, ESPN+ has succeeded through a slew of secondary sports geared toward consumers that are more familiar and accustomed to streaming. This includes a push into youth-focused esports and soccer.

Meanwhile, Disney’s stand-alone streaming service looks poised to thrive when it debuts in late 2019. “We feel that it does not have to have anything close to the volume of what Netflix has because of the value of the brands and the specific value of the programs that will be included on it,” Disney’s CEO said on its most recent earnings call.

The company noted that its streaming service will feature new Pixar, Marvel, Disney, Lucasfilm, and eventually National Geographic content. Disney said that the streaming service’s price point will reflect a lower volume, but has yet to offer up any specifics.  

Bottom Line

Disney will soon offer three stand-alone streaming platforms: ESPN+, Hulu, and what Iger called “Disney Play.” The company has mentioned the possibility of a bundle pricing option for consumers. This could make it highly enticing for those looking to move on from cable, and even those who aren't.

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The Walt Disney Company (DIS) : Free Stock Analysis Report
 
Netflix, Inc. (NFLX) : Free Stock Analysis Report
 
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
 
AT&T Inc. (T) : Free Stock Analysis Report
 
British Sky Broadcasting Group PLC (SKYAY) : Free Stock Analysis Report
 
Comcast Corporation (CMCSA) : Free Stock Analysis Report
 
Apple Inc. (AAPL) : Free Stock Analysis Report
 
Twenty-First Century Fox, Inc. (FOXA) : Free Stock Analysis Report
 
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