The Update Issue: Media Roundup – Teflon Bob, The Latest Content Bidding War, A Dubious Brand Extension

Earlier this month, Disney (DIS) CEO Bob Chapek found himself at the center of yet another controversy... The media chief's latest controversial move was the sudden firing of Peter Rice, Disney's popular chairman of entertainment and programming. The abrupt dismissal of a well-liked leader within the company rattled his loyal subordinates. Making matters worse, rumor […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The Update Issue: Media Roundup – Teflon Bob, The Latest Content Bidding War, A Dubious Brand Extension By Berna Barshay --------------------------------------------------------------- [Bezos, Zuckerberg, Cuban, and Gates are in. Are you?]( A groundbreaking new $30 trillion shockwave is taking the crypto world by storm, and the smart money is making moves. But the real story is the tiny $2 crypto situated at the forefront of this story. Forbes even went as far as saying that the tech behind this class of coins is going to change your life. [Click here to see the $2 coin leading the way](. --------------------------------------------------------------- Earlier this month, Disney (DIS) CEO Bob Chapek found himself at the center of yet another controversy... The media chief's latest controversial move was the sudden firing of Peter Rice, Disney's popular chairman of entertainment and programming. The abrupt dismissal of a well-liked leader within the company rattled his loyal subordinates. Making matters worse, rumor has it that Rice was given no concrete explanation for his termination. Some inside the company speculated that Chapek saw Rice as a potential threat. Rice had been seen as a possible successor to Chapek – but Chapek is only two years into his tenure as CEO and shows no signs of wanting to go anywhere. Industry folks both inside and outside Disney also took issue with how unceremonious the termination was, with one insider telling The Hollywood Reporter... At Disney, at that level, you don't treat [an executive] that way. You give him a production deal, you give him a cover story, you give him a party, you walk them out the door. If you have to execute someone, there are ways to do it. It's the lack of touch. It's like [Chapek] doesn't know how things are done in our town. It's hard to know what happened here. Rice came to Disney after it bought the Fox entertainment assets in 2019. He had spent two decades at Fox, and Disney has a distinct culture. Perhaps he couldn't navigate it. Faring better though was his direct report, Dana Walden, also a Fox veteran, who was promoted to chairman of general entertainment content when Rice was dismissed. She had previously been entertainment chair for Walt Disney Television. With the promotion, she effectively replaces her ousted boss. There has been so much restructuring of reporting lines and responsibilities at Disney under Chapek... It's possible that having lost his P&L control and his oversight of distribution, Rice complained about his job's shrinking scope. This gossip-fodder termination was yet another blow to employee morale and the latest in [Chapek's series of high-profile controversies](. The PR gaffes started with [his public fight with actress Scarlett Johansson]( over her Black Widow compensation and climaxed with the embarrassment, employee conflict, and possible financial consequences of whiffing the response to Florida's "Don't Say Gay" bill. And Chapek didn't just alienate employees over the Florida political stuff... He also seeded discontent in the middle ranks by shifting reporting lines so much and even forcing longtime California employees to relocate to Florida. Then, of course, there's Disney's stock, which is down 40% this year – nearly twice as much as the S&P 500... Disney loyalist park goers are also livid at Chapek for moves he made in that division. Among the changes that inspired small investors to petition for Chapek's ouster was the replacement of the free FastPass line priority system with [the new Genie Plus service]( which costs $15 per day per person and is in many ways inferior. Despite being at the center of so many controversies, Chapek nevertheless came out on top earlier this week... Yesterday, the Disney board announced it had offered Chapek a new three-year CEO contract. I was a little surprised, and I'm not the only one. The public, high-profile missteps have been numerous, the stock is in the tank, Disney employees don't seem to like him much, and the press who cover media have been tearing him apart. With a unanimous board vote, Chapek has definitively proven himself a survivor. Board chair Susan Arnold explained their decision in the release... Disney was dealt a tough hand by the pandemic, yet with Bob at the helm, our businesses – from parks to streaming – not only weathered the storm but emerged in a position of strength. In the end, most of Chapek's controversies boiled down to press blunders – although the one in Florida might prove costly over time. Stirring up employee discontent isn't great for the long-term culture nor long-term profits, but in the short term it doesn't have much impact on the financials. For all the barbs you can throw Chapek's way, the Parks – the free cash flow engine of the company – have come roaring back from the pandemic with incredible profitability. The de facto aggressive price increase from the shift to Genie Plus may lose the company some long-term goodwill and possibly visitation frequency – but we won't know that for a long time, and for now it has really gunned profits. While the improvement at the Parks has been dramatic, if there is one area under Chapek that has thrived and continually surprised to the upside, it has been subscriber growth at Disney+. Even in a start to the year that saw rival Netflix (NFLX) lose subs, Disney managed to beat subscriber expectations for Disney+. Disney is the only legacy media company that has a real shot at overtaking Netflix in global subscribers within the next few years. For all the drama and headline fodder, gaining on Netflix is Chapek's headline accomplishment of the last two years and is probably why he has the full enthusiastic support of the board, even if employees, customers, and entertainment journalists aren't as enamored with him. The endorsement of Chapek – who continues to ruffle feathers by not bowing to the Hollywood norms – suggests the board remains laser-focused on Disney's digital future. Speaking of the digital future, a recent bidding war for coveted content held a few surprises... Earlier this month, digital streaming and TV broadcast rights for the Indian Premier League ("IPL") came up for auction. Disney holds these rights through the end of the year, having inherited them in the deal with Fox. While Americans might not be familiar with the IPL, the cricket league is widely watched not only in India but also across the British Commonwealth countries. It is in fact the third-most popular league, trailing only the English Premier League (soccer) and National Football League globally. The IPL rights have been a key part of Disney's dramatic subscriber ramp-up since launching Disney+ in late 2019. The IPL was critical to Disney attracting an estimated 43 million subscribers to its Disney+ Hotstar service in India, and subscribers in India make up an outsized 30% of overall global Disney+ subscribers. In the most recent quarter, Disney said about half of its 7.9 million new subs came from India, as the March start of the new IPL season drove Indian consumers to sign up. While Disney+ has a ton of subs in India, it doesn't make very much money on them... The monthly average revenue per user ("ARPU") of an Indian Disney+ Hotstar subscriber is only $0.61, about 10% of what Disney charges in the U.S. But Disney acknowledged it would have tough competition to retain these rights. The auction was expected to be a battle between deep-pocketed Amazon (AMZN) and a consortium led by one of the richest men in the world, Indian centi-billionaire Mukesh Ambani. Ambani's Reliance Industries teamed up with Paramount (PARA) to form joint venture Viacom18 Media to bid for the rights. At the eleventh hour, Amazon dropped out, but with Disney and Sony (SONY) still in the mix, the rights still went for 445 billion rupees, or about $5.7 billion. Viacom18 Media took the digital rights for $2.7 billion, and Disney took the TV rights for $3 billion. The $5.7 billion total was a bit shy of the $6 billion to $7 billion some forecasters had been looking for, but the combined bid was still 128% higher than the $2.5 billion the five-year digital and streaming rights had gone for back in 2017. The interest in the IPL rights was so high despite monetization being so low in the country because with nearly 1.4 billion people, India is one of the biggest consumer markets in the world, with a large and rising middle class. Disney investors should brace themselves for increased churn at Disney+. The IPL season wrapped up at the end of May, and with the IPL moving next year, some meaningful percentage of those 43 million Indian subscribers could quit the service. Losing these subs could make it even more difficult for Disney to deliver on its promise of hitting 230 million to 260 million Disney+ subscribers by September 2024. Even had it retained the IPL digital rights, that target was a stretch given the global streaming slowdown. It wouldn't surprise me if Disney used the IPL streaming rights loss as cover to do a reset of that subscriber goal, either when it reports its third-quarter results in August or when it issues 2022 year-end results in November. While such a reset could be a shock to some investors, I think it's broadly understood on Wall Street that Disney needs to revise its subscriber goals. Somewhat incredibly, DIS shares are now trading at around the same level they were at the beginning of the March 2020 lockdowns – when we had no idea how long the Parks and movie theaters would be shuttered and how long the cruise ships would be docked. We also didn't know back then how much Disney+ was about to grow. Most Wall Street analysts seemed relieved that Disney didn't overpay for the IPL digital rights, recognizing that while the big subscriber numbers make for good headlines, they don't make much money off these subs. The discipline exercised in the bidding here is one more sign of the new world order following the growth reset at Netflix. The days of profligate content spending are coming to a close – which is a good thing for future profits. [I was cautious and wrong about DIS shares in mid-2020]( because I thought analyst estimates were way too high. I was right about the estimates but wrong about the stock because no one cared about 2020 earnings. Now DIS shares have round-tripped – but Disney is in a much better position. DIS shares are a good long-term risk-reward here. In other streaming news, Netflix's hit Squid Game is becoming a reality show... Earlier this month, the streamer announced it had greenlit "the biggest reality competition ever." Reflecting elements of the original scripted show, the reality competition will feature 456 players competing for $4.56 million. Contestants will play games inspired by the original show, as well as new ones. The show will have 10 episodes and will thankfully not kill off the 455 losing contestants. Still, I find this a little creepy. If you however are so inclined, you can apply to be a contestant [here](. Finally, briefly, and improbably, Disney is offering a $5,000 drink on its newest cruise ship, the Wish... It's served in the Star Wars Hyperspace Lounge and you can see it [here](. --------------------------------------------------------------- Recommended Link: # [Whitney Tilson: 'Reset your portfolio now']( Whitney Tilson has an important message to share with you. As stocks have tanked... and with rampant inflation eating your dollars... Whitney believes it's time to execute a "portfolio reset..." If you want to protect and grow your wealth from whatever comes next... [click here now](. --------------------------------------------------------------- I received so much thoughtful mail about [yesterday's piece about health care and drug discovery]( and to give the letters proper attention, I will hold them and print them when I get back from vacation the week of July 11... For today, I'll share reactions to recent pieces on [Gap's (GPS) Old Navy]( and [ride-hailing apps Uber (UBER) and Lyft (LYFT)](... Do you think the Disney board made the right call... or are you in the Chapek hater club? Share your thoughts on that or any of today's topics by [clicking here](mailto:feedback@empirefinancialresearch.com?subject=Feedback%20for%20Berna). "Feedback on your e-mail newsletter: Gap's effort to add plus size choices should be applauded. However, my guess (I am a male with previous retail experience) about where they went wrong was assuming patterns, styles, and colors that look attractive on slimmer women will crossover to plus size. "They DO NOT look as such on plus size women and their purchase choices would reflect that decision. "At the other end of the size spectrum, petite size style purchases more closely match mid-range size purchases. "Regarding investment choices, I am sticking with technology and companies that are involved with technology innovation. I expect their recovery will be faster than the other investment choices." – Bruce M. "It's about inflation for the middle class – Old Navy customers. Gas prices to go to work, at the grocery store, and everything else. The internet also creates caution." – Helmut L. "Uber and Lyft are taxi services, providing the same 'get me from here to point B' service is every other cab company. They operate in mature, saturated markets. The only real distinction between them and Yellow Cab was the convenience of app-based ride hailing. "There is nothing preventing other cab companies from copying that service. All other differences are fading away. Employees vs. independent contractors – the local outcome of that issue is going to be the same for all operators in the market. Clean vs. dirty cars – competition continually sorts that out. Part-time use of personal vehicles – earns less income for the owner. In short, the ride-hailing business model is not unique, and per-mile prices of the various operators in every local market will be converging, leaving better service as the only competitive tool. "I don't see how there is room in this business for the additional overhead of an international bureaucratic superstructure. Correct me if I am wrong, but I believe that since the inception of [the] taxi service years ago until the 'rise' of Uber, there has never been a national, much less international, cab company. I expect that within not many years, app-based ride hailing will be ubiquitous in the taxi business, and Uber will be a software licensing firm, if it survives at all." – Kelly F. "Hi Berna – Love all your columns and ideas. "I tried to buy Universal Music ADRs (UMGNF) through Fidelity today and they're telling me they're not allowing opening positions in the security because they don't have enough information about it yet. "Have you heard anything like this or know of another way to buy the stock?" – Rob B. Berna comment: Rob, apologies for the slow response. I just checked this morning, and Fidelity would allow me to trade in UMGNF shares. It may be that they have corrected an earlier problem, and you have been able to buy the stock since writing in. If you still can't, it means you need to get international trading authorization on your account, which just requires filling out a simple form. Regards, Berna Barshay June 30, 2022 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2022 Empire Financial Research. All rights reserved. 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