Less than a week after hedge fund manager Dan Loeb called on Walt Disney (NYSE:DIS) to put more money into streaming, the entertainment giant is doing just that.
Disney announced after hours on Monday that it would restructure its media and entertainment business to prioritize streaming, a transition it said had been in the works for months despite Loeb's open letter to CEO Bob Chapek last week. Disney's streaming business had previously been contained under the direct-to-consumer and international business segment, while its media networks and studio entertainment segments operated as they always had.
But with the surge in sign-ups on Disney+ -- which has added more than 60 million members in less than a year, hitting a level management had not expected until 2024 -- and the pressure from the pandemic weighing on the rest of the business, the company has doubled down on streaming. CEO Bob Chapek said, "Given the incredible success of Disney+ and our plans to accelerate our direct-to-consumer business, we are strategically positioning our company to more effectively support our growth strategy and increase shareholder value."
While the theme parks, experiences, products, and direct-to-consumer and international segments will remain mostly the same, the rest of the business, which encompasses media and entertainment, will be divided into three segments:
- Studios -- which will house Disney's marquee franchises like Pixar, Disney, Lucasfilm, Marvel, and the film studios 20th Century and Searchlight, which it acquired from Fox -- will focus on creating theatrical and episodic content for its streaming platforms and theatrical release.
- General entertainment, which will produce episodic and original long-form content for its streaming services and its cable and broadcast networks. The production department in this segment will include 20th Television, ABC Signature and Touchstone Television, ABC News, Disney Channels, Freeform, FX, and National Geographic.
- Sports, which will be centered around ESPN's live sports programming, as well as the ESPN+ streaming service, and other sports-related content for channels such as ABC.
Streaming is the future
By eliminating the old silos in its business, which were focused around content channels such as box office releases and cable networks, Disney is giving priority to it streaming platform. The company dropped a hint about this when it said in the announcement, "Under the new structure, Disney's world-class creative engines will focus on developing and producing original content for the Company's streaming services, as well as for legacy platforms" (italics are mine).
In addition to the overwhelming demand for Disney+, the success of releases like the Hamilton film and more recently Mulan, which the company charged Disney+ subscribers $30 to watch, also seemed to push the company to realign. Streaming has inherent advantages, after all. Disney has full control of the pipeline here and gets to keep all of the profits. It doesn't need to split them with movie theater operators, haggle over carriage fees with cable operators, or even worry about advertisers in the case of Disney+. While the company will continue to feed content to cable networks and movie theaters, the value of a streaming-first strategy for much of its content is clear, especially as the biggest knock on Disney+ had been the lack of original content.
As part of the restructuring, which is effective immediately, Disney will also separate content from distribution, avoiding conflicts of interest between distribution channels in order to monetize its video entertainment in the best way possible. That may prove to be the savviest part of the reorganization, as streaming now fits neatly within the company's overall media strategy, rather than being an appendage that was added on to a legacy media business with less of an overarching strategy.
Investors clearly liked the move, sending the media stock up 5.2% after hours. The company plans to elaborate on the strategy at a Virtual Investor Day conference on Dec. 10, and will likely discuss it in its upcoming earnings report on Nov. 12. Investors should keep eye out for more original content coming to Disney+ as evidence that the reorganization is bearing fruit.