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Disney Movies and Amazon TVs

Disney (NYSE: DIS) announces that the rest of its 2021 slate will hit movie theaters before heading to Disney+. Amazon (NASDAQ: AMZN) gears up to launch a new line of TVs and possibly sign exclusive rights to the NFL's Sunday Ticket package. In this episode of MarketFoolery, recorded on Sept. 13, Motley Fool analyst Jason Moser analyzes those stories and offers a preview of Apple's (NASDAQ: AAPL) event.

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This video was recorded on Sept. 13, 2021.

Chris Hill: It's Monday, Sept. 13. Welcome to MarketFoolery, I'm Chris Hill. With me today, Jason Moser. Good to see you.

Jason Moser: Good to see you. How did we get to the middle of September so quickly?

Hill: Time travel?

Moser: I mean, it feels that way. This year is just, all of a sudden, here we are in the back half of it.

Hill: Before you know it, it's going to be earnings season again. Not today, though. Today we have more football business to discuss, along with a preview of Apple's event on Tuesday. But we're going to begin today in Hollywood. Disney announced it will release the rest of its films this year exclusively in theaters first and will not stream them on Disney+ for at least 30 days. That comes in the way of Shang-Chi and the Legend of the Ten Rings becoming the highest-grossing film ever over Labor Day weekend, and we've been talking about this for a while.

I've been saying for a while now, I don't think anyone has quite figured this out. When I say anyone, I'm including Paramount and Comcast. I feel like Disney is getting close with this move, I feel like Disney is zeroing in on what is going to be their policy, because they set this record while the pandemic is still going on, and maybe that was enough evidence on top of everything else that's happened over the past year and a half for them to say, OK, we're not going to carve it in stone yet, but for the foreseeable future, this is going to be our policy with movies.

Moser: Yeah. I think we're starting to see at least some writing on the wall here, and what I mean by that is we're seeing signs, and that's based on those movies that you quoted Free Guy and Shang-Chi and whatnot, we're starting to see signs that there are a lot of folks who are more than ready to really start moving forward, and a lot of them have already started doing so. If you've paid attention in the last couple of weeks just to college football and the NFL, we're seeing football stadiums packed; we're seeing concerts happening. We're seeing people excited to get out there and go do stuff. I don't think this is a decision they make lightly. I think it's one they make in looking at the landscape and say, you know what, it's starting to look like people are a little bit more willing to go out there and do things. Vaccinated versus non-vaccinated, maybe, I'm sure plays into that.

I think that when you talk about the pandemic, it's difficult just to lump the entire country into one group. I think much like real estate, we're at the point right now where COVID ultimately is about location. Some places are far better than others. This, I think, is a smart move. When you think about the movie theater business, obviously it's been impaired for the past couple of years. But Disney has a lot of choices. Movie theaters don't. Disney was able to fall back on throwing these releases out to streaming and at least monetizing to some degree and getting that content out there. Movie theaters, they don't share that same luxury. Disney is a partner in this value chain, and I'm sure that they understand and they eagerly consider the fact that their success certainly impacts the success of other partners in this value chain. I don't know that any of us were ever really arguing that the movie theater experience was going to disappear. It may be a shrinking market opportunity, but it's still a fairly big market opportunity in the context of the entertainment industry.

To me, this makes a lot of sense. It's not something, like you said, it's not etched in stone. It's a very fluid situation, but they're seeing signs that I think lead them to believe that this is a sensible decision to make for right now. If they need to pivot again, they obviously have the capability to do that. But on the whole, I'm really happy to see this. I might go to the movie theaters a couple of times a year. But when I go, I enjoy it, and so I do look forward to being able to go back and catch a movie this fall. Disney is known for putting some pretty good content out there. I think this fall, we should have a few choices.

Hill: They do have some big-name films coming between now and the end of the year. They've got another Marvel movie with The Eternals. They've got the remake of West Side Story. You mentioned the movie theaters; those are the stocks that are moving on this news. AMC up 5%, Cinemark up 8%-9%. They have to be hoping that other major studios come out and make similar announcements. Disney shares up a little bit on a day when the market is slightly down. As a Disney shareholder, look at the box-office receipts. There's nothing like the box office receipts. [laughs] It's great to get more subscribers to Disney+. But there's a reason this entire industry, the economics of it, has been based on box office receipts all this time.

Moser: Sure. Yeah, absolutely. It has become very clear that when they offer the opportunity for movies to be released in the theaters, as well as via the Disney+ platform for streaming concurrently, that's not additive. It's taken from one bucket and put in the other. This is leading to some cannibalization of theater ticket sales, and ultimately that's not really the goal. I think you're right. I think that as we see more studios, more providers start dipping a toe in the water, start getting back into the theater experience, I think that you start to see more and more start to take that leap as well.

I think in the case of Disney, and a select few others, the thing to remember with a company like Disney is they have choices. They know now that if something comes up, they can pivot immediately. They have the ability to do that. Now obviously, the movie theaters don't. They're in a much different situation in regard to this market. That's another discussion for another time. But when it comes to Disney, when it comes to Warner Brothers, when you talk about these content providers, more and more they're finding that between the digital channels and the theater channels, they started to kind of get this process down. They have options.

I think that's ultimately what you want to really do, because it's not to say that we're out of the woods yet. We may be; we may not be. Time will tell. But it's very clear that folks are starting to get a little bit antsy. They want to get back out there and do things. Having the ability to go ahead and make these decisions, knowing that you've got that card in your back pocket where you can rely on the digital distribution if you need it, that, I'm sure, is a very appreciated luxury by companies like Disney for sure.

Hill: Back in May, Amazon agreed to pay $1 billion a year to become the exclusive home of Thursday Night Football games. Today we get reports that Amazon is looking to buy the rights for the NFL Sunday Ticket Package, which has been on DirecTV for nearly 30 years. If this happens, it would start in the fall of 2023, and reportedly, Amazon is going to pay somewhere in the neighborhood of two to two and a half billion dollars a year for the rights to the Sunday Ticket package. If they do that, one place people can watch the NFL is apparently on the new Amazon-branded televisions, which are coming next month. [laughs]

We'll get to the televisions in a second. But what do you think of this story? I shouldn't be surprised, but I am a little surprised just because Amazon has been pretty methodical in the way that they have entered different markets. What we saw back in the spring with them getting into the exclusive rights for Thursday Night Football, they already had non-exclusive rights. Now they're getting -- I'm a little surprised that they are at least the betting favorite right now to land the rights for this.

Moser: Well, it turns out there's a lot of value and having basically two core businesses that the world has come to rely on. You've got retail and cloud. These are two prongs to Amazon's business that ultimately are going to be very difficult to fully disrupt their supplant. It's obvious that retail and cloud are very competitive industries. But given Amazon's position in both markets, consumers around the world that really come to rely on them and ultimately, what that does mean that gives Amazon just this opportunity to take bigger risks, to try new things. More importantly, they can feel like they can fail without truly jeopardizing the business because they are so good at what they do in regard to those two core pieces of the business in retail and cloud.

Amazon clearly has grand aspirations of getting into the entertainment business and really being a major name in the entertainment business. MGM obviously, we've seen their efforts here as far as the NFL goes. I think when you look at the NFL, even in the days when we talk about the concerns with the NFL regarding injuries and the nature of the game, it is just darn resilient. It is a league that just continues to really perform and, ultimately, financially perform very well.

If you go back to 2019 -- let's just skip 2020 for a minute, because obviously that was a bit of a different animal, in that the advertising market had its challenges in 2020. But if you look at 2019 of the regular season for the NFL, NFL TV networks brought in almost $5 billion in advertising revenue. That was up 14% from a year ago from the previous year.

It really just boils down to economics. Would Amazon be able to make those numbers work? The league is looking for $2.5 billion annually for that package. You could see a number of different ways Amazon could work to monetize that. They're not all going to be direct forms of monetization, either. They can sell advertisements for the games, obviously. But then you have to figure out a way to quantify additional Prime members that it may bring in additional retail sales that it may stoke due to targeted advertising that they're able to utilize.

I think, all things considered, it's amazing to me when you think about the economics in play here. Then you look at what DirecTV has been doing with this Sunday Ticket for, I think, something like 27 years. It's just a constant money-loser for DirecTV. I would love to have an NFL Sunday Ticket, but I'm never going to get DirecTV. Now all of a sudden, Sunday Ticket has become a potential reality for someone like me because we're a Prime member. I've got an Amazon Fire cube, and we're stuck in that Amazon ecosystem, I think, for the rest of my days on this Earth.

For me, it's not surprising to see that they want to try this, particularly in the context of something that has been such a money-loser for DirecTV through the years. Amazon can afford those money-losers. DirecTV, they don't necessarily have that same luxury.

Hill: What do you think of the television? Because I shook my head when I saw the reports that they were coming out with a TV. Not that I thought it would flop. Not that I thought this is going to be like their phone that they tried years ago. But I understand the move more now, when I read an article about how part of the rationale for Amazon with the television -- and these are not cheap devices. These are televisions that are going to cost anywhere from $370 to $1,100. But part of the rationale for Amazon makes a lot of sense. Basically, they want this to be as seamless a process as possible for people who are using the Fire Stick, already have an Alexa in their home, and there are those points of friction. It's that same ethos that in the earlier days of Amazon had Bezos completely focused on the website of Amazon.com and reducing those points of friction.

If that's the reason, then it's a good reason. How do you think they're going to be measuring success on this one?

Moser: I don't think that they look at this TV and they think this is something that can really drive the bottom line on its own, for example. It's absolutely a gamble worth taking, I think. They are ultimately, in simplest terms, just going more vertical. We talk about companies that are vertically integrated, which essentially means they're controlling that supply chain. They have more control over the production. They have control over their IP. It protects the business a little bit more.

This is essentially, at the end of the day, similar to that, in that a consumer that buys an Amazon television is going to be more locked into that Amazon ecosystem than someone who might just be using the Fire Stick or the Cube. And the reason I say that is, for example, here at our house we have a television, we have an LG TV on our wall, and we're using the Amazon Fire Cube. Now, there's nothing that stops me from going out tomorrow and buying a Roku device and just switching over to Roku. I don't do that just because we've been using this Amazon Cube forever, and maybe just we're Amazon customers, and it works, and we know how to use it, and I get the interface and all that, but it doesn't stop me from changing. Now, you get the Amazon television, you are a little bit more locked in, and they have a little bit more control over you. That maybe we could talk about, the puts and takes of that.

Certainly, it's not all sunshine and lollipops for the consumer. You're giving up a little bit there. But if you look at companies like The Trade Desk, for example, you talk about that connected-television opportunity. The Trade Desk, another tremendous recommendation in our Foolish universe of stocks that I've run for a while now as well, and one I'm very encouraged by because of that opportunity in connected television. Connected TV ad spending is set to surpass $13 billion this year. It is one of the fastest-growing segments in digital advertising. The goal, ultimately, this is the forecast is for $25 billion by 2024.

Amazon views this, and they say, "OK, well, how can we own a little bit more of that connected-TV opportunity?" This is one way to do that. Whether it works for them or not, I think it ultimately really does depend on the technology, because the technology isn't perfect. I will say we've experienced with that Cube device before, for example, that certain apps don't respond as well to the voice command as others. Now, I imagine over time that gets better. But I think this is something that it's a reasonable bet for them to make when you consider the potential benefits. It's not something that's going to drive immense profitability for the business. It could in theory be another loss leader.

Amazon, I think, is just the king of the loss leader, though. They've done so well to this point building this business on that loss-leader concept, it's hard to argue that this would be a move not worth trying, because you brought up the phone before. The phone to me seems like an instant failure before it ever even started. That's because they're launching into this market where there's already two primary ecosystems in the Android and the iOS. Folks are really using Android phones or Apple phones, and it's just very difficult to disrupt that at that point. There's no reason for someone necessarily to switch to an Amazon phone here.

TV is not the same thing. It's a little bit of a different device. To me, it makes sense to certainly try, because it could absolutely yield some very helpful results over the course of time, particularly when you consider that connected-television advertising spend. If it grows away from its forecast, too, it's going to be something that could be meaningful over time.

Hill: I'll just add real quick, for anyone looking for more on the business of football. On the most recent episode of Motley Fool Money, I talked with Andrew Brandt, former NFL executive. He's from the law school at Villanova and runs, I think it's Moorad Center and hosts a sports business podcast, and just a lot of great stuff as always from Andrew Brandt. Check that out when you get a chance.

Real quick, before we wrap up, Tuesday, 10 a.m. Pacific time, Apple is going to have their event. I was watching Joanna Stern from The Wall Street Journal this morning. She made the point last year with the iPhone 12, which was the big refresh cycle this year. She's expecting it to be incremental when that's OK, because most people aren't refreshing their iPhone every year. For a lot of people it's on a three-, four-year cycle. But is there anything in particular you're going to be watching for with Apple's event on Tuesday?

Moser: Sadly, Chris, not really. I'd be interested to know your perspective here, because maybe I'm being a little harsh. But whenever I hear of this Apple event year in and year out over the last several years, I cannot help it, the first image that comes to mind, it's Arthur Fonzarelli in midair with those water skis jumping that stupid shark. It feels like this event is jumping the shark, Chris, has it not?

Hill: It reaches there. I think certainly the pandemic has made so many people and so many companies rethink the nature of work and events and that sort of thing. I do think that certainly the excitement has waned with Apple's event. That being said, I think that what it means for a business of this size, I think it still matters in part because they can never let up. Apple is so dominant, and part of what that means is they just can't let up. Even though experienced smart observers of this industry like Joanna Stern and others, even though they're not expecting a lot of brand-new bells and whistles, it doesn't mean they can sleepwalk through this. They've got to come to the table with enough new features that make people say, OK, we were expecting incremental upgrades; that's what we got. They check the box and we can all move on.

Moser: Yeah, I think that's it. I think that most of us go into these events now with this idea that really it's going to be some incremental improvements. The camera's going to be a little bit better. The device is going to be a little bit faster, and that's all fine and dandy. To me, yes, the event has lost its allure. It's lost its wow factor. But it is marketing, pure and simple. I do get it. I am not saying it's something they need to stop. I feel like maybe it's something they could get creative and perhaps approach it from a different angle, I don't know.

But I think that generally speaking, there's nothing out there that I'm really looking forward to. I think they're going to introduce some incremental improvements to the products that matter most -- the phone, iPads, AirPods, the Watch. They're probably setting themselves up for a pretty good holiday season. Maybe you get some good holiday season ideas.

I think that for Apple, though, it really is all it is. We're waiting for that next lightning-in-a-bottle product. We're waiting for that next iPhone moment where you think, oh my word, they roll a car out there or they roll out something phenomenal.

Honestly, this may not be sexy, but just some massive leap forward in battery technology, I think it would be phenomenal, because I think that's everybody's concern. Particularly when you look at something like the Watch. The watches had done pretty well, but when you start adding more functionality to that watch, now you're talking about something that needs to be on all the time, 24/7, and that is a virtual impossibility as it stands.

I feel like I'm always impressed with battery technology, just because I think we all want a little bit more power. But generally speaking, I think we're looking for the same old incremental improvements. They're going to say the camera is a little bit better and you can do this or that with it. It's not going to really impact most of us. But it's going to be another good opportunity for them to get out there, showcase their technology, the products and services that they just continue to do so well with.

I feel like it is one of the most important companies in the world, and I think that's for a number of reasons. I think we're going to see a lot of those reasons on the supply demand.

Hill: Jason Moser, thanks for being here.

Moser: Thank you.

Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. The show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Chris Hill owns shares of Amazon, Apple, and Walt Disney. Jason Moser owns shares of Amazon, Apple, The Trade Desk, and Walt Disney. The Motley Fool owns shares of and recommends Amazon, Apple, The Trade Desk, and Walt Disney. The Motley Fool recommends Comcast and recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.


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