Mickey Mouse Cashes In On Battle Between DirecTV And Viacom

| About: The Walt (DIS)

DIRECTV (DTV) subscribers will soon have a new network to entertain their children. After losing out on channels like Nickelodeon, MTV, Comedy Central, CMT, and SPIKE, parents now have the chance to help keep their kids at peace, while they cry over missing hit shows like Jersey Shore, Auction Hunters, Tosh.O, and The Real World.

Disney (DIS) announced that its Disney Jr. channel would be joining the DIRECTV lineup. The former Disney Playhouse will be found on channel 289. The channel is available to all subscribers as a basic channel. DIRECTV has said it was one of its most popularly requested channels. Disney Jr. replaces the DIRECTV channel lineup to appear directly next to the popular Disney Channel. The Disney Channel is one of the most popular DIRECTV channels in its lineup.

Original programming that air on Disney Jr. include:

· Jake and the Never Land Pirates

· Babar and the Adventures of Badou

· 3rd and Bird

· Tales of Friendship With Winnie the Pooh

· Doc McStuffins

· The Happy Hugglemonsters

Other shows on Disney Jr:

· A Poem Is

· Handy Manny

· Lou and Lou

· Mickey Mousekersize

· Mini Adventures of Winnie the Pooh

· Mickey Mouse Clubhouse

This is a smart move by both parties, and also benefits customers. The move gives DIRECTV a little bit of leverage against Viacom (VIA) to at least show it can compete against them and temporarily replace popular channels. Disney gains millions of subscribers with a place to showcase children's shows and also Disney and Pixar movies.

DIRECTV has over 19 million in the United States alone. Viacom is hurting by missing out on having its shows not seen by this huge population. In the long run, DIRECTV remains the winner if it can keep subscribers. The company makes the same amount of money right now without Viacom channels. Viacom on the other hand makes money per distribution deal with cable networks. Viacom loses out on 19 million subscribers and now could become the scrambling company to make a deal.

Disney continues to show off its strength from its biggest asset, its television segment. The company's ESPN networks command the highest premium payments from cable providers. In fact, ESPN and ESPN2 both rank in the top five for highest subscription costs per person.

Recently Disney saw a nice uptick from an undervalued asset in the Disney television library. Comcast (CMCSA) just sold its 15.8% stake in the A&E Networks for $3.02 billion. The partial stake of the company that owns A&E, History, H2, Lifetime, and The Biography Channel, was acquired by Comcast in their deal to take over NBC Universal from General Electric (GE). The sale of the stake went to Hearst Corporation, which will now own 57.9% of the television joint venture. So where does Disney fit into all of this? The huge media conglomerate owns the other 42.1% of A&E Networks.

So given the deal price of $3.02 billion for 15.8%, the total value of A&E Networks becomes $19 billion. This makes Disney's stake worth $8 billion. The problem here is Disney has been reporting the asset worth $2.7 billion. So overnight, Disney essentially makes $5.3 billion on its ownership in the A&E Networks. Of course, Disney isn't planning on selling anytime soon, but at least they know what the fair value of this overlooked asset is.

It's highly unlikely that Disney will ever split up. However if it did split up or even spun off the ESPN unit, it would unlock value for shareholders. Even without a split, Disney continues to show strengths in all segments. Theme park attendance is up, movie box office is recovering thanks to the Marvel acquisition (Disney's Marvel Acquisition Continues to Payoff), licensing power is up with a new line of toys centered around characters in Brave, and the television segment continues to flourish with higher NBA finals ratings.

Shares of Disney trade close to a fifty two week high. It's unclear whether or not Disney will change its value on the television segment in its next earnings report. Even if they don't change asset levels, shares are still expected to post earnings per share of $3.01 for this fiscal year. This marks a large increase over last year's $2.54. Shares of Disney should be bought on a pullback and kept for the long haul.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.