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Disney’s revenue flywheel is ‘driven by the creation of content’: Analyst

Tigress Financial Partners CIO Ivan Feinseth joins Yahoo Finance Live to discuss Disney's Q1 earnings release.

Video transcript

- Turning now to Disney. Trading higher right now in the after hours. First quarter earnings beat on the top and bottom line. Disney+ subscribers are coming in just shy of the Street's estimates, but still pretty close. Let's bring in Tigress Financial Partners CIO Ivan Feinseth. Ivan, what are you looking at here? What are your main takeaways?

IVAN FEINSETH: Well, I think overall really good. I think the concern and the bright spot are the parks because that is really insight in consumer spending trends. I mean, you could say that Disney+ could do well or not do well. People are just sitting home not going out.

But consumers are traveling. Travel demand is across the board strong for cruises, for flights, for theme parks. And that is a good indication of the strength of the consumer, or at least the consumer's willingness to spend and the measure of their confidence that they will spend on travel because when things start to slow down and people have economic concerns, the first thing they cut back is on travel. So I think that is a key bright spot. And Disney's flywheel-- I say all the time that content is king. And Disney is the king of content.

And their revenue flywheel is driven by the creation of the content because content drives movie theater releases. It drives streaming content. It drives licensing revenue. And it drives visits to the parks. So the content continues to drive everything. And that slight miss in the subscribers I don't think is a concern at all because they got "The Mandalorian" coming out. And I think long-awaited season three of "The Mandalorian." And that's really what put Disney+ on the map to start with. It was one of their first shows. And it was phenomenal out of the gate and really drove the launch of Disney+.

- Yeah. That parks number is remarkable. 21% increase year over year. Just continues to produce quarter after quarter. What do you make of the DTC number you're seeing, Ivan?

IVAN FEINSETH: I think it's great. I mean, I think that they will continue. They have a lot of content in the pipeline. And I think that will grow the sustain-- drive the growth of the DTC subscriber membership and revenue. And I think it will be sustainable growth for a long time. And they will continue to be able to produce because season three of "The Mandalorian" is much cheaper to produce than season one. They had to build out all the sets. They said that season one cost 20 million an episode. Well, in reality, it cost $160 million to create, produce, and get everything ready. Then season two was cheaper. Season three will be cheaper and so on and so on.

- Yeah, Ivan. So looking at this Disney sort of broadcast entertainment business here, it's sort of flattish for the quarter. Do you think that we're going to see anything from-- hear anything from Bob Iger about the future of ESPN, the future of Hulu? Are they going to unlock some sort of revenue streams or even divest some of these?

IVAN FEINSETH: Yes. I think that is what everybody's waiting to hear. Remember that it was very fortuitous that they launched Disney+ when they did. He introduced it in April of 2019. It was launched in November of 2019. And we went into pandemic lockdown shortly thereafter. And streaming saved them and was really incredible. And so I think the next thing is the only real way they could leverage ESPN is through gaming. And Disney does not want to get involved in gaming. I mean betting. So they need to create some kind of partnership with that.

And I also think, well, that they would be better off owning Hulu 100% and maybe starting to license some of the content to other channels, or even if they don't own Hulu and buy the rest of Hulu, this concept of licensing their content to other channels is interesting because we're already seeing that even though, for example, all of the "Yellowstone" and the two prequels of "Yellowstone" are all from Paramount, the prequels are on Paramount+ streaming, but the "Yellowstone" show on streaming on that is actually on Peacock.

- Love that show. My favorite. Bob Iger says we believe the work we're doing to reshape the company around creativity while reducing expenses will lead to sustained growth. Where do you think that reduction comes from? Do you think we'll hear anything about layoffs? They do have a labor difficulty right now, let's call it. 96% of the union turned down the latest contract proposal. Where do they cut costs?

IVAN FEINSETH: Well, I can't tell you one big spot. And probably they can't either. I think they'll do it in a lot of smaller places because the parks are going at full capacity. You need people in the parks. One of the great things about Disney's parks success is the experience. And the experience is driven by the innovation and the staffing. I mean, their parks are always fully and nicely staffed.

They need the creativity and content pipeline, as I said, because that drives the whole flywheel. So I don't really know how you cut back there. So it will be interesting. So I just think that rather than cut, I think they're going to have to try to get more out of what they have, and especially more content production from what they have. I think that's going to be the key area.

- Yeah. I mean, speaking of more of what they have and trying kind of leverage that, reports that Disney might license some of their content to third parties, do you think that's a strong possibility? And it's easy money. But does that hurt the Disney brand and possible exclusives to Disney+?

IVAN FEINSETH: No. Disney's brand is so powerful. And I think it would do the reverse. Sometimes if you're watching some Disney content on another channel outlet, say, hey, I want to join Disney+. So I think it would have the effect of potentially increasing incremental revenue from other licensing. And I think it would drive membership growth because if you like the content, you may go to the source and go to Disney+ as well. I mean, they already started to talk about showing season one of "The Mandalorian" on ABC. So they're already talking about-- now, they do own ABC. So they are looking for ways to put previous content out in other channels.

- Investors like it. Shares up about 2% after hours. They don't love it. They're waiting for that call, like Ivan is. Ivan Feinseth, good to see you, man. Thank you.