Dylan Lewis: We're talking about Disney today. Dan Kline: I'm a Disney theme park pass holder.
Lewis: And I'm a shareholder.
And I'll tell you, Dan, when I joined The Fool, we make a certain amount of money available
to new employees, it's part of your onboarding.
You get some money, and the goal is for you to start investing, to buy some shares
so that you start understanding how the stock market works, you start following companies.
Even if you're not in an investing role, or in the editorial department, you start following
businesses the way that a lot of our investing teams do.
And when I made my first purchase with some of this money that I'd been given,
I bought a lot of the no-brainer stocks. I was like, "I'm new to this, I want to learn."
It was Whole Foods, it was Apple, and it was the House of Mouse, it was Disney.
I think if there's anyone like me that has the same holding period, they're like throwing
their hands up like, "What's going on with this company?"
Kline: Disney's been challenged by, they've been spending a lot of money to get to where they are now.
If you look at the Pixar purchase, the Lucasfilm purchase, it's all about amassing a film schedule
that they can build everything else off of.
When you release movies, are you more likely to go see the new Star Wars or Space Adventure: Part 1?
Yeah, it's a great preview, but you don't know the Space Adventure characters so well.
Lewis: You take the known entity.
Kline: That's what Disney has been doing, they've been building up intellectual property.
But when you look at that, you can't make a new Star Wars film in three months.
You can't build a Star Wars Land at Disney World and Disneyland in three months
or a year or three years.
There's been a long-term investment in getting Disney to the point where their movie business,
which, while it's only a relative fraction of their revenue at about $7 billion this year,
is the driver for everything else.
You take something like Marvel, how many movies, TV shows, theme park rides --there's a limit
on the theme parks in the U.S. because of the Universal deal, where they don't have
the rights to some of their own characters -- pajamas, comic books, video games, ice cream bars?
There's nothing that Disney can't license once it has the right intellectual property in place.
Lewis: We talk about the Disney magic so often.
I think the truth is the magic is its IP if you're looking at it from an investing perspective.
Kline: Yeah. So, you asked, why has it been so slow?
Why has the stock languished in this range?
Some of it is, when you're as successful as Disney, small failures resonate.
One of the ones we talked about earlier today was Solo.
Solo was a $400 million -- $392 million, to be fair -- box office bomb.
That's not, by the standard of bombs, very bomb-y.
Lewis: There are a lot of studios that would kill for that to be a bomb.
Kline: It will probably actually break even.
You know the movie accounting, they always try to make it not breakeven to not have to pay actors more.
But that film didn't lose a lot of money. That's what a Disney bomb looks like now. ESPN.
"Oh, my god! ESPN's in free-fall! They lost a million subscribers in however many years!"
Relatively, ESPN is still the cable channel you pay the most for, it's still in 90 something
million homes, or 88 million or whatever the exact number is.
Every little misstep with Disney is a big deal because it wasn't Space Rouge: The Movie.
It was Solo, and we know who Han Solo is.
My mother, my grandmother -- who is deceased -- my great grandmother -- who is very deceased
-- all knew who Han Solo was.
Lewis: [laughs] We've had a very morbid take so far, between the mice and your family tree, Dan.
Kline: [laughs] It's not a tragedy that great-grandmother died at 99.
Lewis: You're absolutely right. Kline: But, she knew who Han Solo was.
So, when that movie doesn't do well, it really resonates.
When the latest Pirates of the Caribbean wasn't reviewed that well-- and while globally,
it did OK, it was a middling U.S. thing -- that feels like a much bigger failure than when
Comcast releases something under Universal that was a $200 million guess.
Like their Tom Cruise remake of The Mummy.
That's a much bigger failure than Solo, it just doesn't have the name recognition.
Lewis: Between some of these quote-unquote "misses" and what's been going on with cord cutting,
we've seen the stock hang out in no man's land for a while.
You look over the last couple of years, they've hung out between $90 and $120 a share.
Depending on your cost basis, you're up maybe 20%,
trailing the market, or even down, perhaps, on Disney shares.
Kline: It's the difference between the leeway investors are going to give a tech startup
-- it doesn't matter if Netflix spends three times more on content than what it's taking in.
The ratio isn't that bad, but let's pretend it was.
When Disney does the same, because it's a mature company, nobody says,
"Hey, Disney is positioning itself so no matter where cord cutting and streaming bottoms out,
they'll have every answer."
But if you look at Disney+, if you look at their stake in Hulu, if you look at their
owned networks and content, when we know what the cable landscape is -- and we both cover this,
and we don't know if cord cutting bottoms out at 50 million homes or 75 million,
we really don't know -- Disney will be able to have the right property to sell you what you
want in a way that, especially if you have kids, you have no choice but to buy it.
You can't not have the channel that has Frozen or Cars if you have eight year olds or six year olds.
Lewis: Yeah, the IP library is simply too valuable for Disney, and it's too much of
a must-have for them.
Also, looking back at why this company has struggled a bit over the last couple of years,
because they have this robust ecosystem where they put out the movie, they sell the merchandise,
they create the ride, any misstep at any point, especially when you're talking about the Studio
side of the business, is going to create trickle-down problems for the company.