While we tend to focus on global-macro and thematic investing here at Tematica, we are people and that means that from time to time we too like to have some fun and share some of the things we find enjoyable. It doesn’t hurt that in some instances the little pleasures fit with our investment themes or spring from a company on the Tematica Investing Select List. So from time to time, we’ll let our hair down so to speak and share some of those things that we’re doing, spending on, seeing, and more importantly enjoying.
As a long-time self-confessed comic book nerd, I plunked down my money and eagerly saw The Black Panther, the latest in a series of box office crushing films from Disney (DIS) owned Marvel Studios. The storyline, the conclusion of which promises to alter the course of the Marvel Cinematic Universe as well as set up Marvel’s Avengers: Infinity War, was enjoyable even though to most comic book nerds it is somewhat predictable. That said, much like Iron Man, Captain American: The First Avenger and even Ant-Manthere is much back story groundwork to be covered, especially in this newer aspect of Marvel Cinematic Universe. To say Marvel has become adept at layering the backstory into the story telling process would be an understatement, but much credit also has to go to director Ryan Coogler who filmed a thoroughly enjoyable and digestibly dense movie, that
Are the characters multi-faceted and more than dimensional? Yes, and I credit Marvel’s history of story-telling, which has improved much over the 10-years it has been delivering films based on its characters. The Black Pantheralso used humor well, far better than, in my opinion, too jokey Thor: Ragnarok.
Did I like how King T’Challa’s honor guard was, much like the comics, staffed by more than capable warriors, all of which were women? Loved it and not because it allowed Marvel to check several diversity boxes, quelling much of the criticism it has received with its prior slate of movies. Did the check boxing seem forced? Not at all, rather it fit perfectly with the storyline and history of the Black Panther – all one needs to do is read the source material.
Does King T’Challa’s sister Shuri look to give Marvel’s Tony Stark a run for his money in the techno-genius department? Based on the various technologies created by Shuri that are on display in the movie, it sure does and there’s the added benefit that when needed Shuri kicks butt AND keeps the banter going. To Robert Downey Jr.’s Tony Stark, all I can say is, watch out! The portrayal of Shuri by Letitia Wright, Nakia by Lupita Nyong’o and Okoye by Danai Gurira shows that Marvel can deliver well rounded female characters that can be funny, smart and strong. I can’t wait for Marvel’s Captain Marvel.
The bottom line is whether you’re a fan of super hero films or not, it’s a well-crafted story that expands as well as enhances the Marvel tapestry, and the post-credit scenes advance the inter connected storyline that Marvel has carefully put in place over the last 10 years. It’s great fun, and I recommend seeing it.
I give The Black Panthergets 4 or of 4 paws and you can watch the trailer here.
Are there positive Content is King implications for Disney to be had with The Black Panther above and beyond the box office? In my view, it’s a clear cut “yes” and I’ll be sharing those thoughts with subscribers to Tematica Investing in the coming week.
- Our long-term price target on the shares for Content is King company Disney (DIS) remains $125
With consumers increasing shifting their content consumption to streaming services, be it online or via mobile, we are seeing a number of moves by companies to position themselves accordingly. AT&T (T) is looking to buy Time Warner (TWX), Alphabet (GOOGL) is expanding the reach of YouTubeTV and Apple (AAPL) is hiring programming talent. Amid all of this, Disney scooped up key content assets of Twenty-first Century Fox (FOXA) this week, a long-time strategy of the House of Mouse, but it also acquired the controlling interest in stream service Hulu.
That extra nugget could radically change and potentially accelerate Disney’s already announced plan to launch its own set of streaming services, one for Disney content and the other for ESPN. We see this as a potential gamechanger that also adds our Connected Society tailwind to the Content is King company that is Disney.
The deal puts Fox’s movie studio, 20th Century Fox, under the Disney umbrella, bringing with it the studio’s intellectual property. Having 20th Century Fox’s “X-Men” and “Avatar” under the same roof as Disney’s “The Avengers” and “Star Wars” could have huge ramifications in both the streaming world and the film industry.
Disney announced in August that it will pull its content from Netflix, effectively ending its relationship with the streaming service to start its own in 2019. This means Netflix users will no longer be able to watch content from Lucasfilm, Marvel, Pixar and Disney Animation.The deal between the two media giants means that Disney’s streaming service will include its own deep vault of intellectual property, as well as Fox’s decades of popular franchises, which would most likely get pulled from streaming competitors.
As much as this deal is about the content that Disney would be getting from Fox, it’s also about content competitors like Netflix would not.The deal also means Fox’s stakes in Hulu now belong to Disney, which already has an equal stake along with Comcast. With a majority stake in Hulu, Disney could change the award-winning streaming service’s offerings.
After days of speculation, Content is King champ Walt Disney (DIS) formally announced it was acquiring the film, television and international businesses of Twenty-First Century Fox Inc (FOXA) for $52.4 billion in stock. Viewed through our thematic lens, Disney is once again expanding its content library, which means that finally the X-Men and other characters will be reunited with their Marvel brethren under one roof. As the inner comic book geek in me sees it, perhaps we will know get the X-Men movie we deserve.
While I only half kid about the comic book potential of the deal, the reality is the transaction expands Disney’s reach to include movies, TV production house, a 39% stake in Sky Plc, Star India, and a lineup of pay-TV channels that include FX, National Geographic and regional sports networks. Via a spinoff, Rupert Murdoch will continue to run Fox News Channel, the FS1 sports network and the Fox broadcast network in the U.S.
Viewing the combination through our Connected Society thematic lens, we see the move by Disney as solidifying not only its streaming content business but its streaming platform potential as well. Recently Disney shared that over the next few years it would launch its own streaming services, one for Disney content and one for ESPN, in order to better compete with frenemy Netflix (NFLX), Amazon (AMZN) and other streaming initiatives at Alphabet (GOOGL), Facebook (FB) and the burgeoning one at Apple (AAPL). Let’s remember these streaming services are all embracing our Content is King investing theme as they bring their own proprietary content to market to lure new subscribers and keep existing ones. We have previously shared our view that we are in a content arms race, and acquiring these Fox assets certainly adds much to the Disney war chest once the deal is completed in the next 12-18 months.
The added Connected Society benefit to be had in acquiring Fox is it ups Disney to a controlling interest in streaming service Hulu, which has roughly 12 million streaming subscribers and 250,000 subscribers for its new live TV streaming offering — the online TV package that replicates a small cable bundle. Hulu used to have three different bosses — Disney, Fox, and Comcast (CMCSA) — each owning an equal stake. Following the Disney-Fox deal, odds are Comcast’s role in Hulu will diminish and over time I would not be surprised to see Disney acquire that ownership piece as well. What this does is quickly lay a solid foundation for Disney’s streaming service plans, and I would not be shocked to see Disney convert Hulu into its own branded streaming service once the Fox acquisition closes.
From a thematic investing perspective, the Disney-Fox combination is a win-win on several levels, even though Disney is spending quite a bit of capital to get it done. The reality is there is no better company at monetizing its content and squeezing dollars from consumer wallets and in the coming quarters, Disney will have two very strong thematic tailwinds behind it — a more solidified Content is King tailwind and a burgeoning Connected Society tailwind keeping its sails full.
Near-term, this weekend is the domestic opening of the next Star Wars movie – initial reviews are very positive and advance ticket sales indicate a $200 million opening weekend or better.
- We continue to rate Disney (DIS) shares a Buy, and our long-term price target remains $125
In recent weeks, shares of Content is King company Walt Disney (DIS) have drifted lower as the company shared it is pulling its content from Netflix (NFLX) and embarking on its own streaming services for Disney, Marvel and Star Wars content as well as ESPN. This move brings more than a few questions at a time when candidly there is no clear cut catalyst for the shares. Investors don’t like uncertainty and hence the slow drift lower in the shares to the recent $101-$102 level, that is in line with our entry points in the shares, from $110-$111 just over a month ago.
Given new developments that include CEO Bob Iger sharing that Disney’s 2017 EPS would be flat year over year, vs. consensus expectations that were looking for year on year growth near 2.5%, and the impact of Hurricane Irma on its Florida operations, we expect DIS shares could come under additional pressure in the near-term. One strategy would be to exit the shares, another is to recognize that in the next few months Disney will once again be back at the box office as well as opening new attractions at is very profitable parks business. As a reminder, the company recently opened Frozen land and is slated to open Toy Story land in 2018 followed by Star Wars Land in 2019. These new and branded attractions are likely to entice former park visitors as well as attract new ones.
As the water and impact of Irma subside, we will look to use any incremental near-term pain in DIS shares to improve our cost basis, remembering the company had a whopper of a share buyback program in place exiting the June quarter. On that corresponding earnings conference call, Disney signaled it would repurchase between $2.2-$3.2 billion of stock in the current quarter. Odds are that effort will help backstop the shares in the coming days. Our bias is to use any pullback that brings the shares closer to the $90 level to improve the positions cost basis. Recognizing the potential impact of Irma, and remaining questions on its proprietary streaming business, however, we are reducing our price target to $120 from $125.
- While we expect further near-term disruptions at Disney (DIS) owing to Hurricane Irma, we will remain patient with the shares.
- We are trimming our price target to $120 from $125.
Whether its characters from Disney’s Marvel, Star Wars or Pixar stable, or even DC’s own Batman and Superman, people will flock to the movies to quench their content thirst. Increasingly the international box office is becoming a bigger and bigger factor in movie decisions. Some film, like Expendables 3, are being made solely because of foreign demand, and the same goes for streaming content from Netflix and Amazon. What this tell us is content is truly king, but it also means content companies are likely to pivot to satiate local preferences.
China — not the U.S. — is projected to be the leader in box office revenue in 2017, according to PricewaterhouseCoopers.If true, it will mark the first time that the U.S. has not been the top revenue driver in an entertainment and media segment. The Chinese box office is expected to generate $10.3 billion next year, while the U.S. will be at $10.1 billion. By 2020, the Chinese box office will reach $15.1 billion versus just $11 billion in the U.S.