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Disney will ‘continue to experiment’ with theatrical releases amid streaming push: Analyst

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Jon Christian, an OnPrem Solution Partner, joins Yahoo Finance Live to preview Disney earnings, the company's performance during the pandemic, and what sets Disney+ apart from other streaming platforms.

Video Transcript

EMILY MCCORMICK: Jon Christian, founding partner of on OnPrem Solution Partners, joins us now with a preview and much more on the streaming landscape. Jon, thank you so much for your time this afternoon. We saw a disappointing quarterly subscriber addition for Netflix and weaker than expected guidance. Are you expecting a similarly tepid performance out of Disney+ this quarter?

JON CHRISTIAN: Well, I think Disney will continue to perform. Obviously, coming out of COVID, there was a huge spike in subscriptions, right? So obviously, that's going to plateau off. But again, streaming is the way that they're focusing on, and they're putting all efforts there. So I'm interested in seeing what happens there.

BRAD SMITH: Jon, do you believe that anything Netflix had mentioned with regard to the decelerating growth will be present with Disney?

JON CHRISTIAN: Well, the one thing that's interesting about Disney is that they definitely have a diversified revenue set. So they're not just a pure streamer, right? So they get into theatrical release. They have a tremendous amount of revenue. And their merchandise and consumer goods are the retail on that side. And then they also have theme parks, right? So it's not just segmented to just, obviously, pure streaming, right?

But with that, obviously, Disney is going to be focused on data. Data is king, making sure that they understand the data around the users, which actually helps and informs them in terms of what content they produce. And they've been doing a great job in terms of the franchise model and creating basically content that creates stickiness for their users.

EMILY MCCORMICK: When we think about the theatrical releases versus the streaming platform releases for Disney, of course, that's something they've been experimenting with over the course of the pandemic. Where ultimately do you think the company is going to fall in terms of the proportion of the content that they put directly into theaters and the proportion that they put on streaming, either exclusively or in tandem with these theatrical releases?

JON CHRISTIAN: Yeah, well, so the first thing is it's great that they actually have an ability to have a theatrical window, right? So that's adverse to what Netflix is in the pure streaming environment. And so I think, unfortunately, we've been a little bit bogged down with COVID. So the experimentation is not completely accurate, right? Not everyone's going to the theaters, right?

But where I think it's going to fall-- and this is not just for Disney, but for all of them that have a theatrical release component-- is there is going to be a period of time, call it a month, six weeks, that they're actually going to put on theatrical release solely before they put it to the platform.

Or maybe they have something on the platform where there's a pay per view that goes along with it, but they're going to get an uptick of revenue from that. And then they'll release it solely to the platform. And I think I'm excited to see where that experimentation happens because I absolutely don't believe that theatrical is dead. And so I think they'll experiment there and continue to see where that takes them.

BRAD SMITH: Jon, you also mentioned some of the differing elements of how Disney's revenue was made up. And as a part of that pie, parks and resorts, of course, and the experience economy, that plays a major role in how Disney is able to chart its own reopening story as well, which has been sputtering. And so with regard to that particular line of business, what are some of the expectations around how that will perhaps dovetail into, of course, what's become a focus on their streaming element of their business, how the parks and resorts will continue to, hopefully, try and rebuild itself post-pandemic as well?

JON CHRISTIAN: Yeah, well, I think the good news for Disney is that they think about it as a combined ecosystem, right? All these things combined, so it's not just the content itself, but it's how they market it. It's the consumer goods and retail. It's the theme park experience, a fully immersed experience. And so what I see is basically these new franchises, these new series. You have Marvel. You have Star Wars. That's all going to play a huge piece in basically how they update their parks and create that experience, right, and create that stickiness.

EMILY MCCORMICK: We've seen for streamers from Netflix to Disney that, really, building out a content library is an extremely expensive endeavor. Disney has said that Disney+ should be profitable by fiscal 2024. How convinced are you of that timeline? And how much more do you think Disney will have to spend to keep being on the cutting edge of being a leader in the streaming space?

JON CHRISTIAN: Yeah, yeah, well, it's two things. So first, it's on the revenue side, right? You need to make sure you have the critical mass of subscribers. And you need to make sure you keep them. So stickiness is huge, right? So you need to keep filling that funnel full of content. And again, I keep saying this, but the concept of a franchise, to have those repeating series and episodic that people are going to continue to come back for. I talk about the "Game of Thrones" content, right? So they're going to have to continue to produce that content to get those users there.

And then the next thing is, you've really got to think about the cost size, right? So the other important piece on the revenue is globalization, right? So hitting territories outside the US. The issue with the global market, though, is that the revenue that you're going to bring in is going to be less than the US market. So you need to be efficient. So it's all about the data, making sure that you have a very efficient data platform to understand what the users are consuming and how much they're consuming.

You also really need to make sure that you have an efficient digital media supply chain. So the content and it being prepared and being sent to all the different distribution points, right, and then the localization around that. And there's cool technology that's coming out with AI in terms of dubbing technology and things of that. And so, really, those go hand in hand, right? And so these companies that are used to re-engineering their process to a new digital-first environment, they're going to come out ahead, right? And so Disney, I imagine that they're going to become efficient, as well as with the revenue. So I think the timing of 2024 seems reasonable.

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