September 28, 2016

Disney optimistic on China

Walt Disney appeared at the 25th annual Goldman Sachs Communacopia conference... Here are some of the more salient points.

-    Disney sees a healthy consumer in the U.S. and no sign of a consumer slow-down or issues with consumer spending.

-   Lower fourth-quarter income due to the calendar.

-    Sees MLB BAMTech investment for ESPN as a high-quality acquisition. Twitter  did a good job last week streaming the live NFL game, and that platform was powered by BAMTech.

-    ESPN has a treasure trove of digital rights for 99% of sports it covers that are not currently being exploited monetarily on new platforms.

-    For primary leagues, deals with major sports leagues like the NBA offer barriers to entry for competitors. No one can monetize sports better than ESPN because of its subscription fees and ability to access multiple platforms. New entrants are interested in gaining rights, however, as direct competitors to current sports content owners (Fox (FOXA) , Time Warner (TWX) , CBS (CBS) , etc.), they will have difficulty monetizing rights because of how expensive sports rights currently are.

-   Moving forward with subscription-video-on-demand platforms, Disney aims to make access to content easier and all in one place because "the consumer doesn't want to look in multiple places for content."

-  The opening of the Shanghai theme park has been fantastic. The company is not updating specific numbers, however. If not for recent poor weather, the first 100 of days of traffic would have been best opening for any park in the company's history. Shanghai is a tourist destination for the rest of China, and attendance so far has been dominated by people visiting from outside of Shanghai.

-  Zika concerns have not impacted theme parks in Orlando whatsoever.

-  The company is currently building multiple large Star Wars attractions in Florida and California.

-  Success at the box office is due to the company's focus on creating quality over quantity. Tent-pole films work very well in China, and the company aims to create more of them. Disney believes in full ownership and full control of content. Outside money is of absolutely no interest to the company when it creates content and films. Since acquiring Pixar, Marvel and Lucasfilm, the average global box office gross from each film has been slightly less than $800 million. Disney is creating a Star Wars universe, continues to build on Marvel universe. Rogue One, the next Star Wars film, will debut in December.

-  Primary programming approach will not be all that different than it is today, this year the company will be presenting 55,000 hours of live sports. Live sports products will form the basis of ESPN no matter what platform ESPN sits on. Disney has discussed strengthening studio programming and has made some personnel changes to reflect new direction.

-  Company is looking to make it easier for consumers to access content on mobile platforms, and looking into different ways to make accessing content more personal.

I remain short Disney. DIS shares are trading about $1 lower today to approximately $92 a share. The chart looks awful, and the chart appears to be "rolling over," as I have consistently noted over the last few months.

The shares were placed on my Best Ideas List on Nov. 27, 2015, at $116 a share.

Position: Short DIS

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