Disney Doubles Down On Digital Media

| About: The Walt (DIS)


Disney buys Maker Studios and access to its 380 million subscribers.

The deal could be worth nearly $1 billion. Luckily, Disney can afford it.

Disney has been building its content, now it's focusing on delivery.

Disney (NYSE:DIS) doubled down on digital media this week, and you might just want to return the favor. A long position would be a smart move given all the well-chosen irons this company has in the fire.

The family entertainment company just bet $500 million that Maker Studios would help it grow in the online video content sector, and promised another $450 million if certain performance standards are met.

Maker is a content producer which distributes its videos through Google (NASDAQ:GOOG)'s popular YouTube. It currently has 380 million subscribers worldwide across 55,000 channels - and probably a good bit more after receiving so much press after the Disney deal was announced.

The numbers are impressive for a company that only opened its proverbial doors in 2009, but its main strength for Disney is its audience - young millennials.

Tapping into the market of people too young to make major purchasing decisions but too old to tolerate family television for long is not an easy task. Teenagers are notoriously difficult, even for a company like Disney. Moreover, this acquisition not only gives Disney a large pool of viewers, but it also brings that expertise into the company.

Disney is well aware of how valuable that is. In fact, the company is keeping its new acquisition far away from its existing web services and gaming division. Maker Studios will stay essentially as it is, even keeping CEO Ynon Kreiz at its helm - and Kreiz only has one person to whom to report, Disney CFO, James A Rasulo.

The question is, will this bet fall as flat as Disney's recent attempts to make a go of digital media.

After all, the company's 2009 investment in Netflix (NASDAQ:NFLX) rival, Hulu was not exactly a breakout success, nor was its 2010 foray into social media gaming. Disney undoubtedly took a hit after dropping $563 million on Playdom - luckily, the company who gave you Mickey Mouse can afford the chance.

Last year, Disney bought Lucasfilm, giving it the rights to the Star Wars franchise, amongst others, and it struck a deal with Netflix, which is estimated to be worth around $300 million a year for Disney. The pact gives the popular streaming video provider the exclusive rights to air Disney movies eight months after they hit the theaters, and gives Disney some wiggle room to figure out how it wants to digitize its content and the most profitable way to deliver.

Disney took a hit the day after the news hit that it had bought Maker Studios, going from over $80 per share at market open to a low of around $78 by lunchtime - but it recovered, and my bet is that the stock will continue to rise in the long run. Its share price is bound to be affected by such a large purchase, but this is a company that managed to nearly double its share price over the last two years, and there is no sign of that momentum slowing.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.