Subscription Commerce

Netflix, Disney And The Great Entertainment Shift

On Wall Street, market capitalizations are shorthand for investor sentiment — for positive or negative views, generally speaking, of publicly-traded companies’ prospects.

Rule of thumb: The higher the market cap — defined as shares outstanding times the price per share — the better the company is doing in investors’ eyes.

At the end of the week, Netflix’s market cap was neck and neck with Disney’s, at a respective $185 billion and $192 billion. Netflix, according to MarketWatch, raced toward record highs, and earlier in the week actually surpassed the “mouse house,” touching $426 and change for a record price, before backing off to $422.96 to end the week.

The neck-and-neck jockeying pits a multi-decade media conglomerate, famed for amusement parks, sports and a staple of beloved cartoon characters against a media startup that relies on the emerging tailwinds of in-home entertainment and streaming on-demand media.

The balance of power seems to be shifting to the digital realm — and no firm, really, can escape the move to digital because the coronavirus pandemic demands it, especially for media companies.

For that vertical, it’s less choice than force. Being “left to our own devices” takes on a whole different meaning when self-isolating.

The various stay-at-home orders and mandates that social gatherings be virtually eliminated make a dent in Disney’s core pantheon of revenue streams that are rooted in physical interactions (theme parks, etc).

This is not to suggest that Disney has been caught entirely flat footed. The firm, of course, has been making inroads into streaming media, where it said this week that Disney+ has 50 million subscribers, up from a bit more than 26 million as recently as February.

But Disney relies on at least some cross-pollination here, and it still relies heavily on brick-and-mortar experiences as movies beget rides at its theme parks, and theme parks beget a third of the roughly $21 billion (quarterly) top line. The kids, of course, become lifelong loyalists to Mickey and Co. upon visiting the parks, where a stroll into the gift shop is mandatory and further helps to load Disney’s coffers.

Elsewhere, the film unit logs roughly $3.7 billion in revenues. And the direct-to-consumer/international segment gives $4 billion (media networks is the remainder).

Even a return to some normalcy might not insulate Disney from some of the reliance it has on in-person events. As reported by MarketWatch this week, in research noted by Lightshed Partners analyst Richard Greenfield, the pandemic is proving tough for Disney’s “flywheel.” If the movie business continues to be impacted, Disney will find it tougher to find traction with “downstream” revenue sources.

“While it is entirely possible that movie theaters reopen in the fall of 2020, the question becomes what does that mean?” Greenfield asked in the note, as relayed by MarketWatch. “If a 300-seat movie theater does every other row and every other seat for social distancing, its capacity falls to just 78 (down 74 percent).”

The direct-to-consumer model has some work ahead of it to offset the impact to the traditional business.

“While we are very excited about the early results from Universal’s Trolls World Tour, which skipped theaters and went direct-to-consumer (should soon be the biggest digital revenue movie in history exceeding Disney’s Avengers), we are talking about a sequel to a $346 million box office film, not a $1 billion to $2 billion blockbuster,” Greenfield wrote in the note.

It bears mentioning too, that if the park rides somehow, in some (perhaps not too) distant future become virtual reality events — tied to headsets and enjoyed in the comfort of the family’s own home — it still would not offset the hit taken to the parks side of the business.

Netflix’s own model, by way of contrast, is tailor made for the era of social distancing, tied to paid subscriptions rather than ticket-by-ticket purchases or trips out of the house to see what’s on offer (at a theme park or theater). 5G would serve as a catalyst for more connectivity, which bodes well for streaming media, too.

There’s no reason to think the offline/online business model must go away for firms like Disney on a permanent basis, unless the pandemic permanently decimates daily life as we know it, but the road ahead is bumpy, and for right now, bits and bytes seem the way to go.



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