While the studio's performance in the quarter will look dreadful, we don't think it reflects a significant negative turn in Disney's film business.
The cost of producing movies has stayed in check the last couple of years. Marketing costs have gone up, but it's still a benefit because it feeds a nomination for a studio that's part of a larger conglomerate such as a cable network.
Adding Harvey Weinstein to the board, one of the most influential people in Hollywood, is one way in which Mr. Snyder can at least ensure that he will 'get a meeting' with key Hollywood insiders and immediately be plugged into the entertainment industry.
The most important aspect of tomorrow's meeting is to get everybody on board and to understand the overall strategy of what they are doing.
Even though that is three years away, we believe that the net present value for such a revenue stream is currently not priced into the stock.
Disney's operating momentum is still the best of all the large entertainment conglomerates.
If the current (U.S. economic) recovery is not sustainable, it could adversely affect earnings results, estimates and/or price target.
It is possible that other financial buyers show interest, though we think given the leverage likely required by an acquisition and the lack of a clear exit strategy, it would be difficult to justify the purchase.
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