Disney Has Tough Act to Follow With Investor Day: Its Own

(Bloomberg) -- When Walt Disney Co. was preparing to launch the new Disney+ streaming service last year, executives spent an afternoon wooing Wall Street with ambitious subscriber goals and plans for heavy spending on films and TV shows.

The effort paid off. Disney shares jumped almost 12%, adding $24 billion in market value and bolstering the view that the entertainment giant would challenge streaming leader Netflix Inc.

Investors are hoping for something of a repeat this week, when management hosts another investor day, again focused on streaming. A fast start for Disney+ has pushed the stock to an all-time high, even as the company has been pummeled by the coronavirus, which forced movie theaters, cruise ships and theme parks to close or operate at reduced capacity.

Here’s a look at some of the themes Disney and its new chief executive officer, Bob Chapek, are expected to touch on in the presentation scheduled for Dec. 10.

Subscriber Forecasts

After attracting almost 74 million subscribers globally in its first 10 months, Disney+ has blown past the company’s own five-year forecast for at least 60 million. That’s a feat even Netflix CEO Reed Hastings called “super-impressive.” Analysts are expecting a new five-year target of around 158 million. That compares with Netflix’s 195 million currently.

“Anything above that would be received positively by investors,” Michael Morris, a Guggenheim Securities analyst, said in an interview. “A number under that would probably be disappointing, relative to what are high expectations for the product.”

The company will also likely give subscriber forecasts for its other streaming services: ESPN+, Hulu and Star, an international offering set to debut next year. Disney hasn’t said which countries Star will launch in. Executives may also be asked about the impact of a one-year-free Disney+ offer for Verizon Communications Inc. customers that began expiring last month.

Movie Distribution

With consumers shunning theaters due to the virus, Disney bumped the release dates for some of its biggest films into next year. It put others on Disney+, either as part of its regular $7-a-month subscription or, in the case of “Mulan,” for an additional $30. Disney is expected to talk more about how it plans to release films in the future, perhaps shortening the amount of time pictures play solely in theaters and offering them sooner online.

Warner Bros., part of AT&T Inc., said last week it will put all of its 2021 films on its HBO Max service the same day they hit theaters. If Disney takes a similar approach with potential blockbusters like Marvel’s “Black Widow” or puts them exclusively on its streaming services, that will have major ramifications for movie theaters, said Bloomberg Intelligence’s Geetha Ranganathan.

“They’re basically dead if they do that,” she said.

Meanwhile, rumors have been swirling online for months that Disney will add more adult-oriented content to Disney+, possibly an 18-years-old-and-up section that requires a separate password to access.

Content Spending

At last year’s investor day, the company highlighted big investments it would be making in streaming, forecasting operating costs of almost $1 billion for Disney+ in the now-completed fiscal 2020 and saying profitability for that business won’t come until 2024. Disney said last month that losses for the direct-to-consumer business would rise by about $100 million in the current quarter, but investors largely cheer such numbers as the result of important investments in the company’s future.

Disney isn’t being valued based on its earnings power today, but instead on projections for revenue from recurring subscriptions, said Michael Nathanson, a principal at the research firm MoffettNathanson LLC.

“Wall Street is looking at revenue and putting a multiple on that,” he said.

Sports Programming

Disney is in the midst of contract renewals for its NFL rights, which expire after next season. The $1.9 billion-a-year package consists largely of “Monday Night Football” today, but the company is expected to try to get more for its money, perhaps games on other days. Online sports rights will also be a topic of discussion this week as the company builds out its ESPN+ streaming offering. It’s a long shot, said Guggenheim’s Morris, but the company may also offer its flagship ESPN channel directly to consumers.

Management Structure

CEO Chapek announced a restructuring in October that put control of all the business functions for the company’s TV and film business in the hands of a new distribution arm, led by former consumer products chief Kareem Daniel. Investors will likely want to hear more about this new structure -- how it will affect financial reporting, for example, and who’s making decisions about what movies and TV shows to make and where they appear.

It’s a tumultuous time in the media business. Every major entertainment company has been reorganizing its operations to align them for a streaming future. Four of the 17 Disney executives who spoke at last year’s investor day no longer work for the company.

Product Pricing

The company priced Disney+ intentionally low at $6.99 a month to quickly snare as many customers as possible. In the past year, rivals including Netflix have raised subscription prices. Disney increased the monthly bill for Hulu’s live-channel bundle by 18% to $65 recently. ESPN+ also went up by $1 to $6.

Disney Chief Financial Officer Christine McCarthy, who recently extended her contract by one year to December 2022, hinted during a presentation in September that price hikes are coming, if not immediately. “There is pricing power, we believe, but that will come as we put more original content into the services,” she said.

This year’s investor day will be in many ways the opposite of 2019, when expectations were lower, according to Barclays Capital Inc. analyst Kannan Venkateshwar. This year the company will have to work harder to surprise.

“We believe messaging at the event needs to be a lot more expansive and deliberate,” he said in a research note last week.

©2020 Bloomberg L.P.