Shares of the Walt Disney Company (NYSE: DIS) were up over 3% on Tuesday, a day after the company announced a major reorganization of its media and entertainment businesses. The media giant is realigning its entertainment assets to focus more on its streaming business due to the strength it is seeing in Disney +.
Under the new structure, content production at Disney will fall under three groups – Studios, General Entertainment and Sports. The Studios division will produce content based on the company’s popular franchises for theatrical release, Disney + and its other streaming services. They will include The Walt Disney Studios, Pixar, Marvel, Lucasfilm, Searchlight and 20th Century Studios.
The General Entertainment division will create content for the company’s streaming platforms and its cable and broadcast networks. They will include ABC, 20th Television, Touchstone, Freeform, FX and National Geographic. Sports will focus on sports programming for ESPN+ and ABC.
Disney will move all its distribution activities into a single segment called Media and Entertainment Distribution and this unit will handle distribution, ad sales and streaming services operations. It will be led by Chairman Kareem Daniel.
The COVID-19 pandemic and resultant restrictions hit Disney’s theme parks and studio entertainment businesses significantly causing massive revenue declines. On the flip side, during the lockdown period, the company’s streaming services witnessed a nice pickup as users spent more time online with their favorite shows.
Disney +
Disney + has witnessed continued growth since its launch. As of August, Walt Disney had a total of over 100 million paid subscribers across all its streaming services, of which over 60.5 million subscribers were for Disney +.
Disney possesses a vast trove of content in the form of popular movie franchises and TV shows, which is a huge advantage. The company is also investing significantly in the development of original content which will continue to drive growth going forward. The direct-to-consumer business has witnessed revenue growth through all three quarters of FY20 amid the pandemic.
Parks, Experiences and Products
During the first quarter of 2020, the Parks segment witnessed an 8% increase in revenues helped by increased attendance and higher guest spending. In the second quarter, the segment took a hit from COVID-19 with revenues falling 10% as parks, resorts and the cruise line business were shut down. In the third quarter, revenues dropped massively by 85% as all the businesses in this division remained closed for the entire quarter.
Studio Entertainment
In the first quarter, Studio Entertainment revenues more than doubled year-over-year to $3.8 billion helped by the performance of Frozen II and Star Wars: The Rise of Skywalker. In the second quarter, revenues increased 18% despite the closure of theaters due to the pandemic. Revenues took a huge hit in the third quarter dropping by 55% as theaters remained closed and no significant titles were released.
Disney’s dependence on its Parks and Studio segments took a toll on its entire business in its most recent quarter. Considering the strength seen in streaming services during the health crisis and the future growth potential of its online platforms, it makes sense for Disney to shift its focus to its streaming business and invest more in this area.
Click here to read the full transcript of Walt Disney Q3 2020 earnings call