Buy Iger's Disney legacy

Mr Iger's most significant move prior to stepping down has been to establish Disney as the most credible challenger to Netflix in the 'streaming' market. The importance of this market, where viewers subscribe to access TV and film on-demand through the internet, is reflected in Neflix's 167m paying customers as well as the fact that 42 per cent of British adults consider streaming to be their main viewing method.

While Disney is one of several media giants entering what has been termed the 'streaming wars', its offering looks most credible. It has enjoyed a hugely successful debut on the streaming stage with its eponymous service ‘Disney+’. It achieved 10m sign-ups within one day of launch last November, and 26.5m by the start of February 2020. Management revealed that this “exceeded even our greatest expectations” – indicating, perhaps, that earlier guidance of 60m-90m subscribers by 2024 could prove too conservative.

Unlike Netflix, Disney doesn’t count on streaming alone; its bets are hedged across multiple viewing formats. It boasts well-diversified revenues, spanning other streaming offerings (Hulu and sports platform ESPN+), as well as cable TV, film and theme parks. 

Under Mr Iger, Disney also used its financial muscle to bolster its portfolio over the years with strategic acquisitions of well-followed franchises – including Star Wars owner Lucasfilm, and Marvel. And last March, after a bidding war with Comcast (US:CMCSA), it purchased Twenty First Century Fox for $71bn. 

Such M&A activity, along with its history of content production, means that Disney+ has a ready-made back catalogue of must-watch content at its disposal, much of which is exclusive to the streaming service. That goes some way to explain why the platform’s investment in original programming does not need to be anywhere near as high as that of Netflix's $15bn content budget for it to be a very serious contender. Disney+ expects original content spending of just over $1bn for the 2020 fiscal year, reaching around $2bn by 2024. Bosses said they expect to spend about $1.5bn on licensing content previously made by the Disney studio, and $2bn in 2024. It should be noted that Disney’s total content budget – not just related to Disney+ – will be much higher.

On the pricing front, Disney+ is also able to be very competitive; charging $6.99 a month, or $69.99 a year. And while it started out by offering discounts, it still achieved average revenue per user (ARPU) of $5.56 over the first quarter to December 2019.

That ARPU helps to underpin the platform’s path to profits. While management expects Disney+’s operating losses to peak between 2020 and 2022, it expects profits in 2024. By comparison, Netflix achieved operating profits of $2.6bn last year. But Netflix is still funding its content investments through debt, and anticipates negative free cash flow of $2.5bn in 2020, down from a $3.3bn outflow in 2019.

Disney+ sits within its parent company’s direct-to-consumer (DTC) and international segment, which constitutes about a fifth of total revenues. The group’s largest business areas – each making up about a third of sales – are cable networks and broadcasting, and parks, experiences and products. Overall, group revenues climbed by more than a third to $20.9bn in the first quarter. Profits grew by a relatively meagre 9 per cent to $4bn – but this was because of (expected) operating losses within DTC of $0.69bn, after investment and consolidation costs. In the second quarter, management expects DTC losses to hit $0.9bn.