Disney is targeting China
Considering the rising popularity of English language content around the world, US media companies are increasingly focusing on international markets such as China (FXI). The Walt Disney Company (DIS) partnered with Alibaba (BABA) to operate DisneyLife, an OTT (over-the-top) content service in China.
However, late last month, the Wall Street Journal reported that DisneyLife was suspended in China by Chinese regulators. Last month, Chinese regulators also put a stop to Apple’s (AAPL) online book and movie service.
One of the reasons for Disney’s tie-up with Alibaba to launch DisneyLife was that Chinese regulations prevent Disney from launching a channel in China. Disney has also tied up with Tencent Holdings (TCEHY) to distribute its ESPN sports programming in China.
One of the reasons for the increasing popularity of English language content in China has been rising Internet penetration in the country. According to a January 2016 report from the China Internet Network Information Center and as shown in the above graph, China had 668 million Internet users and Internet penetration of 48.8% as of June 2015.
Disney intends to leverage its box office success
Disney’s content has enjoyed rising popularity in China. The company stated in its fiscal 2Q16 earnings call that its movie Zootopia has done $235 million of business to date in China, and The Jungle Book has generated around $150 million at the Chinese box office.
Disney also stated that it plans to add Zootopia characters to its Shanghai Disneyland in China, considering the success of the movie.
Piracy is a dominant issue in China when it comes to consumer merchandise. However, Disney believes that the growing Chinese population and the success of Disney’s movies creates an opportunity for the company to sell its licensed merchandise at affordable prices there.
Disney makes up 0.84% of the iShares S&P 500 Index (IVV). IVV has an exposure of 3.4% to the computers sector.
In the next part, we’ll take a look at Disney’s valuation metrics.