Walt Disney Company (DIS)

Disney has traditionally managed economic difficulties by cutting hours for its employees at its resorts. At Disneyland, employees have been working without a contract since February 2008. Many are being cut back to 30 hours a week or less and being assigned "casual regular status," which does not cover health care. Employees have been protesting profusely and negotiations are still underway. With the recession of 2008 in full swing, there is great pressure to cut costs, which will be made very difficult by union action.

Unite Here Local 11, a union representing over 15,000 hotel, food service, laundry, airport, and stadium workers in LA, officially launched http://www.disneyisunfaithful.org/ to provide a public face to Disney's alleged cuts in healthcare and hours.

Like other media companies, Disney is threatened by piracy of their valuable content. While the company has tried to control this by providing some video-on-demand online (of course, with advertisement), this is not a solution to the problem.

Currently, Disney is trading around $25 a share. If this merger works out favorably, expect that price to increase. If it fails though, the price will likely remain flat as evidenced by the stock showing little change after the announcement.

Put simply, Marvel just might not be the gold mine Disney thinks it is. People could grow tired of seeing comic book characters on the big, small, micro and mini screens.

Even if they don’t, the country is in a lingering recession. When people don’t have jobs, they don’t usually indulge in entertainment. That showed this summer, when only a few of the expected blockbusters actually made it big.

Of course, Disney has survived other hard times before. And if Time Warner can make comic book franchises work, you’d better believe that Disney can too.

Movie studios in general may very well look to superheroes to supply their feedstock for new licenses, television shows, movies, games and action figures. Not to mention that comic books easily lend themselves to apparel, soundtracks, bounce equipment and more, so retail companies could boost sales by signing agreements with Disney.

It’s clear that both the larger Disney company and Marvel shareholders will profit from the buyout, and consumers will get new choices for their entertainment dollars.

What we’re still not sure of, is whether Disney shareholders will come out ahead ^[1].

1. ↑ "Disney’s Spidey Sense is Tingling" Article from InvestmentU

Disney CEO Iger said in February 2009 that a broad-based decline of the DVD business was occurring as consumers shifted viewing habits onto the Internet and other formats. Furthermore, the average U.S. household owns about 80 DVDs already, decreasing the likelihood that they will expand their permanent collection. More and more consumers are moving to internet deliveries as Blockbuster and Netflix introduce new streaming download services. The margin Disney makes on these downloads is significantly lower than on DVDs. 2009 Q1 Studio revenue fell 26 percent from a year ago. Disney's 2009Q1 32% fall in net income could not be blamed solely on economic decline, said Iger.

The global economic downturn has the potential to do a lot of harm to Disney. As reported in the company's fourth quarter, advertising revenue and hotel bookings are sharply down. Attendance at its theme parks so far is down about 1% and bookings for the first two quarters of 2009 are down just under 10% from last year. Media revenue was flat in the fourth quarter due to lower advertising revenue at its broadcast unit and competing coverage from the US Presidential election.

Increases in fuel prices have increased operating costs at Disney's theme parks and the Disney Cruise Line.

Disney's live action studio did very poorly in 2005, with a series of flops that cost the company hundreds of millions of dollars. While a hit could help generate revenue in all the other business segments, the market is increasingly crowded with competition. The computer-animated film sector, for instance, is nearing saturation, with at least 15 major movies in 2006 produced by numerous studios.

Disney has extensive tourism-related business and assets, which are very exposed to macroeconomic conditions. In addition, ad sales, a huge part of Disney's revenue stream, would also be negatively impacted by an economic downturn.