Will Warner Bros. Discovery (WBD) be able to execute on its Disney-esque, franchise-first strategy?
Needham analyst Laura Martin, who claimed Warner Bros. Discovery may be “the new Disney” in a note following the company’s fourth quarter earnings results last week, doubled down on that stance in an interview with Yahoo Finance Live.
“What I think Disney (DIS) has demonstrated very successfully over the last decade — which is what Warner Bros. Discovery is now saying — is we want to have film franchises and we want to expand them into consumer products and into video games and into consumer merchandise,” Martin said on Monday, referencing the company’s goal to have multiple revenue streams centered around franchises like Harry Potter and the DC Universe.
“This is a long-term standing [strategy for] Disney under Iger where they only give money to their franchises, because when you build a new Superman film you basically generate traffic and viewing of your old Superman library,” she added.
“This is a smart play — they’re following the Disney roadmap strategically. Now we have to see if they can implement it.”
Zaslav emphasized on the earnings call the company’s IP will be a clear driver in its success, announcing a new production deal for multiple “Lord of the Rings” movies, as well as a continued focus on its revamp of the DC Universe and upcoming streaming initiatives (a press event scheduled for April 12 will reveal more details regarding the HBO Max/Discovery+ relaunch).
On the gaming side, Zaslav said video games are “core” to its strategy after Hogwarts Legacy sold more than 12 million units to hit $850 million in revenue in its first two weeks since launch: “As the only studio scaled in gaming, we see it as a meaningful differentiator and a substantial opportunity.”
Martin, who maintained her Hold rating on the stock with a price target of $15.73 a share, said Zaslav “is repositioning WBD as a ‘storytelling’ company — similar to DIS,” adding his commitment to free cash flow and capital allocation will further fuel valuation upside.
Still, one area of concern centers around Zaslav’s DC rebuild which, will not only be a costly endeavor, but will also take time to realize any revenue generation.
“The big question mark is the big allocation of capital this year, which is rebuilding that film slate. …You won’t get a dollar of revenue until the film comes out three years from now, so you won’t know how well they’re executing for three years. …That’s risky,” Martin said.
Overall, the analyst emphasized DC will always be compared to Marvel— but will it close the gap?
“Can DC films do a better job of closing the gap with Marvel, with revenue, with fandom?” Martin asked, adding: “The reason the Disney engine works is they have Star Wars, princesses, they have massive fan bases in these properties.”
“Warner Bros. has never been able to do that, so let’s see if [the film business can actually create these huge properties that Disney has] under David Zaslav and his management team,” she concluded.
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