Wells Fargo analyst Steven Cahall has put forth a provocative proposal: Disney should exit the streaming business and revert to its pre-streaming model of licensing its content to other distributors. This shift, he estimates, could boost Disney's stock price by approximately 40% and add about $10 per share to earnings. Cahall argues that such a move would de-risk the business model, allowing management to concentrate on its core intellectual property (IP), content creation, and lucrative experiences business, which he believes would not suffer from content being available on other platforms.
Cahall's analysis indicates that by returning to a licensing model, Disney could generate over $15 billion in annual licensing revenue, particularly by fiscal year 2028. This figure includes pay-one movie output deals, pay-two licensing windows, and leveraging Disney's extensive content library. To illustrate the potential, he points to Sony's deal with Netflix, which brings in $1 billion annually for pay-1 movie output. Cahall believes Disney, with its stronger global box office presence, could command nearly $4 billion for global pay-1 alone, significantly higher than Sony's revenue.
The proposed strategy would represent a stark reversal for Disney, which since 2019 has focused heavily on its direct-to-consumer streaming service, Disney+, pulling much of its content from third-party platforms. Despite Disney+'s relative success in the streaming wars, the company's stock has remained largely flat over the past five years and has fallen 14.17% year-to-date, almost 20% over the past year, and nearly 46% over the past five years. Cahall believes that a licensing model offers a far more reliable cash engine compared to the typically thin operating income margins of direct-to-consumer platforms, which he forecasts at about 13% by fiscal year 2027. This move would also simplify Disney's business and focus on assets like characters, franchises, and brands without the financial strain of operating a streaming service.
