Buylyst

Published on 01/15/19 | Saurav Sen | 4,442 Words

The BuyGist:

This is the first worldview written in an investment thesis format.
Disney is going through one of the biggest transformations in its history - with the 21CF merger and the launch of Disney+ in 2019.
The "New Disney" will be a behemoth in Media. But does that distinction come at too high a price for existing Disney shareholders?

Why Disney?

Last week I organized my thoughts on Investing in Global Dominators. Disney, among a couple of other companies, came out on top of the list of Dominators. And the reason Disney made it to that list in the first place is 1) because of its dominance in Family Entertainment and 2) because of its impending merger with the Film and TV assets of 21^stCentury Fox. Together Disney and 21^stCentury Fox will be the largest content producer/owner in the world. This is a major shakeup in the Entertainment industry. It would be premature to have a nuanced view on Disney without a view on the Entertainment Sector in general. Fortunately, The Buylyst does have a view on the industry. This thesis combines those two worldviews – Global Dominators and Entertainment – in trying to determine whether Disney is a comfortable company at a comfortable price.

There are 2 broad themes out of those worldviews that I’ll use to give this argument some structure:

From Investing in Media & Entertainment: The Entertainment landscape is in a period of flux. There are 4 broad links in the Entertainment “value-chain” – Content Producers, Content Curators, Content Delivery “pipes”, and Devices. There’s money to be made in all 4 categories, and a few firms dominate each of the 4 parts.
From Investing in Global Dominators: Software, and proficiency in it, is the change mechanism that can either widen the Moat between those dominant Entertainment firms, or it can kill them. All firms are tech firms now.

Before I dig into Disney, I’d like to summarize what has really happened in the Media & Entertainment space in the last 3-4 years. This is a collection of somewhat random thoughts:

People want to watch what they want, when they want, on any device they want.
The combination of Cloud Computing and broadband internet (and soon to come 5G) allows that.
This has led to cord-cutting on a mass-scale.
#3 has put a wrench through the decades-old advertising model.
The selection of home-entertainment is incredible compared to even 5 years ago.
If the Hollywood studios release a movie in theatres, it should warrant a “big theatre experience”. Otherwise it’s hard to drive audiences into theatres.

It seems to me that Disney realizes all this and, more importantly, is acting on it.

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