Wells Fargo analyst Steven Cahall has put forth a provocative proposal: The Walt Disney Company should discontinue its direct-to-consumer streaming operations and instead return to a traditional content licensing model. This strategic shift, according to Cahall, could eliminate the costly distribution burden of Disney+ and potentially unlock more than $15 billion in annual licensing revenue by fiscal year 2028. Such a move is estimated to add approximately 10% to Disney's earnings per share, translating to over $9 per share, and could increase the company's valuation by about 40%.
While Cahall lowered his near-term price target for Disney shares from $146 to $125 due to broader macroeconomic pressures and adjusted box office assumptions, he maintained an "Overweight" rating on the stock. He argues that Disney possesses substantial "self-help" options that could significantly enhance its valuation over time. The analyst believes returning to a licensing-heavy model would simplify Disney's business, strengthen its cash generation, and de-risk earnings per share by allowing management to focus on its intellectual property and Experiences segment.
Cahall compared Disney's potential licensing revenue to industry benchmarks, noting that Sony generates over $1 billion annually from its pay-one movie arrangement. He estimates that Disney, with its stronger box office profile, could command roughly three times Sony's figure for global pay-one rights, implying nearly $4 billion from that window alone. He also contrasts the projected licensing revenue stream with the comparatively thin operating income margin of a direct-to-consumer platform, which he forecasts at about 13% by fiscal year 2027. Cahall challenges the conventional wisdom that streaming platforms are essential for media companies, suggesting that Disney's premium content model may not be ideal for the daily content cadence required to reduce churn on digital-native platforms.
