Will Disney's Cost Cut Strategy Help Revive TV Business?

In an effort to increase profitability of its TV business, media behemoth, The Walt Disney Company (NYSE:DIS) is likely to initiate cost containment efforts at Disney/ABC Television Group, per media reports. Per the sources, the company could reduce the annual cost at the division by 10%.

However, the company has not yet come to any conclusion on the mode to cost reduction, which may include layoffs. In the recent past, both ABC Television Group and Disney Channel have been witnessing rating decline and stiff competition. Further, the likely cut in the overhead expenses is expected to impact both ABC and Disney Channel.

Per The Wall Street Journal, Ben Sherwood, TV business president has chalked out a plan, which includes trimming the headcount by as much as 300 employees out of 10,000. Notably, the Disney’s ESPN, which has been witnessing subscriber loss and higher programming cost, has witnessed similar retrenchment previously.

Direct-to-Consumer Streaming Service

Most of the broadcast and cable networks providers have been under immense pressure as the Pay-TV landscape continues to change owing to migration of subscribers to online TV. To counter this change Disney recently stated that it will come up with its own streaming service in the future.

Disney stated that it will terminate distribution agreement with Netflix (NASDAQ:NFLX) for subscription streaming of the new movies starting in 2019. Instead, the company will have its own streaming services — one for Disney and Pixar brands and another for ESPN followers. Disney will start online streaming services for ESPN sports in early 2018 and its branded direct-to-consumer streaming service in 2019 will air Disney movies as well as TV shows. The ESPN-branded multi-sport streaming service will give an option to enjoy 10,000 live international, national and regional games every year. Tournaments like Major League Baseball, National Hockey League, Major League Soccer, Grand Slam tennis, and college sports will be live streamed.

Meanwhile, through the fresh Disney-branded service subscribers can view both Disney’s and Pixar’s latest live action and animated movies, starting with the 2019 theatrical slate. Movies like Toy Story 4, the sequel to Frozen and The Lion King will also be streamed. This step gives an indication that Disney is confident about distributing content itself without relying on Netflix or any other companies.

Where is the Stock Heading?

Despite the fabulous run of its movies, the company’s shares have declined 5.2% in the past three months, in comparison with the industry’s fall of 3.2%. Meanwhile, shares of AMC Networks Inc. (NASDAQ:AMCX) , Time Warner Inc. (NYSE:TWX) and Lions Gate Entertainment Corp. LGF.A have gained 11.5%, 1.7% and 4.3%, respectively.

The success of movie business is crucial for Disney as the loss of subscribers at ESPN and decline in rating at the company’s youth-focused Disney Channelhas been a major concern for investors. Disney currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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