IGER: Post-Cable Malone | Disney Deep-Dive (Part 1)
Narrator: "Bob Iger is the Neo-Cable Cowboy. DIS is TCI All Over Again. Rebundling to Profitability In 2025" -- ESPN+ AD <Pay to Skip>: 100 More Years of Disney Brand IP & Pricing Power at Disneyland!
Disney | Part I:
3 Cable Subsectors
John Malone, Cable Cowboy
Cable Business Model & The TV Bundle
The Streaming Revolution
The Rise of Netflix
The Current State of US Media Sector
Neo-Media Competition: Tech Megacaps
How Did Disney Become A Media Company?
Disney+ Launch & Iger’s Return
DMED Operating Income
Live Sports, The Crown Jewel
The Sports Moat
ESPN+, Transition to DTC
Deus Ex Machina
Hit Franchise VC model
Rebundling’s Elixir of Life
Economies of Scale
Ripley’s Believe It Or Not
Knight in Shining Armor
Pricing Power of the Caribbean
100 Years of Mickey Mouse
Economies of Scale, The Netflix Disadvantage
Disney CEO Bob Iger wishes he had a Time Stone. Brought in to rescue the House of Mouse from the whippersnappering of his Avatar alter-ego Bob Chapek, stock vigilantes have ample reason to question whether he is capable of navigating several Infinity Wars at once: unrelenting competition from Netflix, a tumultuous industry disruption, Linear TV’s melting ice cube, the breakdown of MVPD negotiations with Charter, ESPN’s rocky DTC transition, Disney Plus’s profit meltdown, Hulu’s $10B acquisition from Comcast, and the recent Star Wars (Hollywood strikes).
On top of that, the entire US Media industry is currently going through its own version of the Warring States Period. The Streaming famine currently deluging the Cable industry resembles the interference of a canon event — with Netflix’s ample FCF leaving half of its competitors behind in the dust with a proverbial snap of its fingers. The humungous scale, web of complexity, larger-than-life personalities, rearrangement of chess pieces and flamboyant drama lighting up the sector is reminiscent of John Malone’s adventures in Cable Cowboy — one can only Marvel at how many parallels there are between the present-day situation and the US Cable sector during its 70’s heydays. Kingdom Hearts, indeed.
Yet the troubles equally hide opportunity aplenty, hidden in plain sight and visible to the All-Seeing Eye. The shifting sand Dunes of disruption have throughly wrecked the moats of Cable’s incumbents; and Lady Destiny is currently in the midst of redistributing its spoils to He Who Remains. There’s an excellent reason for the outright ferocity behind these Hunger Games — the winners of Streaming’s Game of Thrones will inherit the Aggregator moats of the dying Cable industry, and have the practically unlimited pricing power of Rebundling bestowed upon them for the rest of the next generation. He who controls the industry’s bottlenecks controls its margins; and the Philosopher’s Stone of the industry is Economies of Scale.
Thus, the question begs — what is Iger’s Endgame, and how will he navigate Disney’s House of Cards? Fortunately, he has plenty of ammunition at his disposal — Disney’s 100-year library of America’s beloved entertainment IP, ESPN’s monopoly-lite control of US sports rights, Disney’s vastly superior economies of scale and operating leverage capacity VS. Netflix, and the enormous pricing power behind Disneyland. In the same way that markets overreacted to Netflix’s pivot towards the wonderful economics of an ad-supported business model, they are likely exaggeratedly depressed over Disney Plus’s short-term profit woes today — and completely blind towards the incredible latent potential lying dormant behind its All-in-one Streaming bundle.
I wrote my last NFLX 0.00%↑ report (read here) at close to its bottom of around $180 in May ‘22 (today: $465) — could this also be the point of maximum pessimism for Disney today? Disneyland’s earnings power alone already might justify DIS 0.00%↑ entire market cap today, independent of what happens to their video business. In the most ironic fashion, the US Streaming industry is reliving the Cable heydays which immortalized John Malone as legend — and is giving Bob Iger the chance to do it all over again. Is DIS 0.00%↑ the spiritual successor of TCI; and can Iger be immortalized as the Post-Cable Malone?
Given the sprawling nature of Disney’s businesses, this Part 1 report aims to unTangle the staggeringly complex US Media industry, and provide a comprehensive high-level overview of each of Disney’s businesses from 30,000 feet — whereupon we shall progressively drill down into each significant business and investment-related factor to gain a better appreciation of them. In next week’s Part 2 report, we will build on top of that high-level understanding by diving into the nitty-gritty financial factors — in an attempt to unpack each of their future business trajectories, as well as analyze their historical financial performance to provide a window into DIS 0.00%↑’s wider Group valuation.
I want to give a huge shoutout to Alex from The Science of Hitting Substack (TSOH), who very graciously allowed me to lean on his research while analyzing Disney. His incredibly detailed insights into Disney were extremely helpful, and I will be generously linking back to his articles throughout my reports. I consider TSOH as the premier investment newsletter for Big Tech on Substack; in the same way that I consider SemiAnalysis for Semiconductors. Please show your support to his newsletter by visiting it at the link above.
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Episode I — Cable Industry Primer, Rise of Streaming & The Netflix Menace
Why Cable, Not Streaming? The US Media Industry is ridiculously vast and complex; the closest analogy I would draw to describe the current web of complexity is the war between the Seven Kingdoms in Game of Thrones, or the Warring States Period in China. Watching each of these Captains of industry do battle is akin to watching a kingdom raise its banners against another kingdom — owing to the humungous scale (and money), mindboggling complexity and larger-than-life personalities involved. Since many of the legacy media companies are Cable incumbents (e.g. Charter, Paramount, Comcast), and much of Disney’s future in Streaming bears likely resemblance to the legacy moats of the Cable industry, it is essential to understand what the US Cable sector looked like both during John Malone’s era and today.
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