One Wall Street firm reportedly has downgraded media giant Disney’s stock and cut its share-price target, saying investors have unrealistic optimism on content.
Disney's shift to pay-television and direct-to-consumer video products will weigh on the stock, thanks to a sizable initial investment and a long lead time to get the offering up and running, CNBC cited a Guggenheim analyst as saying.
Disney announced plans in August to launch its own streaming services rather than rely on Netflix Inc. to reach online viewers, Reuters reported.
Under its plan, Disney will stop providing new movies to Netflix starting in 2019, a deal analysts at RBC Capital Markets estimate earns Disney more than $100 million a year.
Some on Wall Street have doubts that Disney can easily replicate that revenue stream.
"Our updated outlook reflects our increased caution toward pay-TV ecosystem trends and concern that investor expectations for the financial contribution from the company's content cycle are too high," wrote Guggenheim analyst Michael Morris, CNBC reported.
"While we are optimistic that the company's proposed direct-to-consumer video products will create long-term value, we expect the initial investment and long lead time into the launch of the Disney-branded offering will weigh on sentiment over the next 12 months."
The analyst set his new price target at $105, down from $122. The new target is 7 percent higher than Wednesday's closing price, CNBC explained. Shares have fallen nearly 8 percent since the announcement that Disney will pull its content from Netflix.
To be sure, streaming networks Amazon and Netflix have recently lured the makers of pioneering shows from broadcast and cable networks with big cash offers and promises of creative freedom, Reuters reported.
“Netflix, Amazon, Hulu and the like are really putting their money where their mouth is,” said Melissa Rosenberg, a former writer on Showtime’s “Dexter” who moved to Netflix to create the dark superhero show “Jessica Jones.”
“They’re paying creators, extraordinary actors, and for the budgets of shows equal or better than basic cable or network TV,” she said.
Cable and traditional television are still forces to be reckoned with, though.
“Traditional media companies are scrambling, saying: ‘How do we beat back so much money being thrown at TV?'” said Peter Csathy, chairman of media and technology advisory firm CREATV Media.
“The challenge is about compelling storytelling and keeping talent amid those forces,” he added.
One big attraction for broadcast television defectors is the creative freedom offered by streaming.
“Network (TV) is limited by what it can put on air, and it answers to advertisers, so there are a lot of limitations as to how far you can go, whether a character is likeable, edgy, racy,” said “Jessica Jones” creator Rosenberg.
And all the networks are chasing the next “Game of Thrones,” HBO’s popular Emmy-winning medieval fantasy series, which has become the pinnacle of prestige TV.
“Everyone is looking for a tent-pole show so that they can scream loud and proud to bring audiences and keep them there,” CREATV’s Csathy said.
“‘Game of Thrones’ is a poster child for breaking the rules in terms of storytelling and killing off lead characters with reckless abandon,” he said. “That’s something we traditionally have not seen in television.”
(Newsmax wires services contributed to this report).