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How Disney’s DTC Model to Benefit from Fox Merger?

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Jan. 31 2018, Updated 10:33 a.m. ET

Direct-to-consumer model

Disney’s (DIS) recent plan to acquire 21st Century Fox (FOXA) assets is a big step towards the company’s goal to launch its direct-to-consumer model in the middle of 2018. In 2018, the company plans to launch an advanced ESPN app offering 10,000 live sporting events, followed by a Disney app in 2019, which will feature films and TV shows. Therefore, the acquisition could support the Disney app through strong content.

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Tailwinds of the Fox merger

The above graph shows the company’s revenue over the last five years. It has grown at a compound annual rate of 5.2%.

Disney’s idea to directly deliver service to consumers stemmed from the success of low-cost video streaming operators Netflix (NFLX) and Amazon (AMZN). Big players Facebook (FB) and Apple are also enhancing their video content with original shows. Therefore, the acquisition may grant Disney some market traction in the overheated OTT (over-the-top) market.

The deal will likely provide strong movie and TV content. Popular movie brands such as X-Men, Deadpool, Planet of the Apes, and Avatar will join Marvel, Lucasfilm, and Pixar in the company’s portfolio. The company aims to offer its huge movie collection to consumers with the launch of the Disney app in 2019. This strong program collection could also allow the company to strike a better bargain with subscribers on rates. Moreover, the acquisition is set to give Disney access to STAR TV India, which may further strengthen Disney’s market share as well as its advertising and affiliate revenue.

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