The Walt Disney Economics: Will It Live Happily Ever After?

So, is the streaming war a zero sum-game theory? Not exactly. There could be not just one winner of the ongoing streaming wars. In the new paradigm of content delivery, they are able to coexist. 

That's where branding and economies of scale come into play. In game theory, there's also a "Non-zero-sum" game where one decision maker's gain does not necessarily result in the other decision makers' loss and vice versa, which shows the possibility of a win-win game. If we think of the internet video as an ecosystem, then the more players there are in internet video, the bigger that ecosystem gets.

Ensuring A Happily Ever After in the Long Term

Disney is currently facing inflation that isn't purely macroeconomic, but is related to an increase in wage pressure and costs related to new projects. Over the years, Disney is known to have a high pricing power which helps them adapt to inflation. 

To put it in economic terms, a company can achieve pricing power in several different ways, such as selling goods and services that are vital to customers, giving them no option but to pay up or having strong loyalty from customers. 

However, while Disney's revenues from its direct-to-consumer sales increased by 23% to $4.9 billion in the second quarter of 2022, their operating loss increased by $0.6 billion to $0.9 billion as a result of greater programming and production, marketing, and technology costs that were partially offset by higher subscription revenue. 

Disney Parks, Experiences and Products revenues surged to $6.7 billion in the second quarter of 2022, up from $3.2 billion in the prior-year quarter. As Disney parks reopen, Disney's operating income was partially offset by higher costs of operating. 

Overall, Disney's operating margin was still below pre-Covid levels. This leads to a new question that needs to be resolved: as their businesses are getting back to operating at near full capacity, will the company be able to maintain its profitability in the changing market? 

Other than having to deal with the increasing costs, Disney's stock price has fallen over the past year from around $170 per share to $103 today. This can be explained by investors' hesitation on the streaming industry, which is also provoked by Netflix performances where they lost 200,000 of its subscribers in the first quarter of the year, and the cultural war in Walt Disney World Florida that resulted in the removal of its special tax status. 

Despite its track record as one of the largest media conglomerates in the world, and is perhaps best known for their massive library of movies and shows - pioneer of cartoon films, investors are concerned that their abundance of content may not be enough to overcome the slowing growth in its traditional broadcast and TV cable. 

If Disney is able to gain investors' trust and improve their performance by constantly updating their competitive strategy in the long term, then they will most likely continue to live happily ever after.

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