Edit Metric
|
||||||||||||||||||||
Details
|
||||||||||||||
Walt Disney Company (DIS)Stock (Media & Entertainment Industry, Television Broadcasting Industry, Broadcasting - TV Industry, Consumer Products Industry, Entertainment - Diversified Industry, Broadcasting TV Industry)
 Under the leadership of its new CEO, Bob Iger, Disney has renewed its emphasis on its core strategy of creating and distributing attractive content for children and syndicating this content through its various entertainment channels. For example, when Disney produces a new movie, it continues to capitalize on the characters in the movie long after it has left the box office. Before the movie leaves theaters, the company will have already released a line of complementary toys and action figures. This is followed by the release of the movie on DVD and - depending on its popularity - a presence in Disney's theme parks or its own television show. In line with this strategy of maximizing the value of its content, Disney recently began distributing its content in new ways, such as video-on-demand online and television shows formatted for video iPod users. Although distribution through these new mediums comes with significant risks of piracy, the migration of younger audiences (Disney's core customer base) away from traditional television to new media makes finding new ways to reach out to this demographic critically important. Disney has also invested $350 million to develop its own in-house video game development capabilities. Disney purchased animated film studio Pixar in 2005, though the two had a previous distribution agreement prior to the acquisition. Pixar, which produced such hits as Cars and The Incredibles, will provide Disney with an ongoing stream of original content that can be syndicated across its various business segments. Disney posted record earnings results in 2006. As for 2007 and beyond, a large part of the company's success will depend on its ability to continue creating hit characters and movies. Hit movies affect more than just the studio entertainment business, for all of Disney's other business divisions depend on strong new content in order to drive sales. The company is expected to have strong 2008Q4 sales despite the financial slowdown since it generates royalties from contracts that were placed prior to the credit crunch. So far, most customers are not canceling or adjusting those orders, according to the company. [1]
[edit] History and Corporate Overview The Walt Disney Company was founded in 1923 as a movie studio, and its iconic Mickey Mouse character appeared for the first time five years later. In 1955, Disneyland Resort opened in Anaheim, California, and the company went public two years later. Over the following decades, Disney continued to expand, acquiring film distributors and perfecting its model for consumer product merchandising. In 1996, Disney acquired ABC, and in 2006, Disney finally purchased its long-time partner Pixar. [edit] Major Sources of Revenue
[edit] Business SegmentsThe Walt Disney Company divides its operations into four business segments: Media Networks, Parks and Resorts, Studio Entertainment, and Consumer Products. Media Networks Media Networks manages Disney's operations in the television, Internet, and radio media industries. The division is centered around its American Broadcasting Company (ABC) television network, though Disney also a number of other successful networks, including ESPN, Walt Disney Television, and SOAPnet. Additionally, Disney holds substantial ownership interests in Lifetime and A&E. The Walt Disney Internet Group runs websites for many of the company's media networks. Only Disney's radio presence has been decreasing, with the recent sale of its ABC Radio Network to Citadel Broadcasting (CDL). However, Disney does still own a number of radio stations across the country and world. Parks and Resorts This segment deals with the operation of Disney's theme parks and resorts, both in the U.S. and abroad. Also included in this bucket is the Disney Cruise Line, which offers cruises from Florida to Disney's private island, Castaway Cay, in the Bahamas. Disney has been working to expand this segment in recent years. Efforts to this end include the completion of the Hong Kong Disneyland and the announcement of the construction of two new cruise ships 50% larger than previous ones. Parks and Resorts has been a significant driver of growth over the past few years, and a record-setting 112 million visitors came to Disney theme parks in 2006. When Disney released its Q3 FY2007 results, this division's 13% growth in operating income and 4% increase in theme park attendance were seen as principal drivers for the overall 4.7% rise in Disney's quarterly profits. Studio Entertainment Often regarded as Disney's most visible business, Studio Entertainment is actually subject to a great deal of variability in terms of both revenue and profit generation, as its performance is driven largely by Disney's ability to produce hit movies to be released in theaters, on television, and on home video. A flop, like the 2002 movie Treasure Planet, can be quite detrimental to the company's profits. On the other hand, a blockbuster hit, like the Pirates of the Caribbean series, can boost sales and profits substantially. Consumer Products The Consumer Products segment licenses the Disney brand for a variety of merchandise. Products bearing the Disney brand range from toys and apparel to home décor and electronics. The Disney Store chain of retailers also falls under this segment's umbrella. Though revenues for the Consumer Products division have traditionally come from licensing the Disney brand to other manufacturers, current chairman Andy Mooney has been expanding the segment's reach from licensing to manufacturing its own products. Current initiatives in this division include the recent $350 million investment in developing Disney's video game business, aimed at increasing the company's presence in this rapidly growing market. [edit] New ManagementIn 2003, former Disney vice chairman Roy Disney resigned to protest CEO Michael Eisner's leadership. In 2004, Roy Disney and another former board member, Stanley Gold, convinced 43% of Disney shareholders to withhold support for Eisner's re-election. Amidst growing criticism, Eisner finally stepped down in 2005, and Bob Iger became the new CEO. Iger made a number of changes to the company and has generally been seen as a positive influence. He restored a great deal of autonomy to individual business units. He also installed a number of cost-cutting measures that have yielded the highest profit margin in years. [edit] Trends and Forces[edit] Volatility of advertising revenuesOverall advertising spending is largely driven by the economy, as well as by the presence of large-scale TV events like the Olympics. Disney's ABC has recently achieved success with shows like Lost, Grey's Anatomy, and Desperate Housewives. Advertisers are willing to pay more for airtime during shows like these because they attract large numbers of viewers. Similarly, ad prices spike during playoff sports coverage and Superbowl coverage. A very disappointing sports season or flagging TV show ratings can significantly hurt advertising revenues, as does a general economic downturn [edit] Consistency in affiliate feesSensitivity to short-term fluctuations in advertising spending are somewhat offset by steady revenues from cable networks' affiliate fees, which tends to provide a more stable revenue stream. However, a large portion of affiliate fees come from sports coverage channels in the ESPN network, where the cost of sports coverage is rising. Extended increases in sports coverage cost may materially affect operating income after 2013, when Disney's current contracts with broadcasters will expire. [edit] Growing technology investmentsWith the decline of traditional media to favor of influential technologies like Youtube and Apple's iTunes/iPod, it becomes necessary for media conglomerates to learn how to tap into these channels to access the audience and the advertising revenue. Disney recently began to post both full videos and clips of its programming online at ABC.com, ESPN.com, and Disney.com. In addition, Disney has begun to sell ABC content for use on iTunes and video iPods. These are new initiatives, but they have been very popular and could be a considerable source of future growth.  [edit] Exposure to movie attendanceThe Studio Entertainment division's revenues are subject to conditions in the larger movie industry, including the rate of movie attendance. In recent years, the advent of online video and a rising amount of piracy has led to slow or flat growth in movie attendance, causing studios such as Disney to reevaluate their film distribution methods. In the future, film studios are expected to focus more on the higher-margin DVD and television broadcast segments as a result of this decline in cinema viewership. [edit] Slowing DVD businessThe DVD market has begun to mature over the last 2 years. Consumer spending on home videos dropped by about 2% in the past year. Fortunately, For Disney which derives a large portion of its revenues from syndication of its content the impact, however, as DVD sales growth has not slowed as much for Disney's target audience (kids). [edit] Opportunity: the weakening dollarThe value of the dollar relative to other currencies can change substantially over time. If the dollar weakens against the Euro for instance, this implies that the dollar can buy less in European goods and the Euro can buy more in American goods. This means that foreign goods become more expensive for Americans and American goods become less expensive for foreigners. This can have substantial implications for businesses whose end products are sold to foreign consumers. Disney theme parks for instance are frequented by Eurpean tourists. The long term weakening of the dollar against the Euro has makes it less expensive for European tourist to visit Disney parks and resorts increasing their overall attendance. [edit] Video games investmentAs children grow up, they tend to trade their toys for more sophisticated forms of entertainment such as video games. However, children are making switch earlier and earlier, a phenomenon termed as "age compression", so the market for video games is growing larger. Disney, however, does not currently have a large presence in this rapidly growing video game market, spurring its recent $350 million investment in developing its video game business over the next few years. [edit] Writers Guild of America StrikeOn November 5, 2007 television writers, associated with the Writers Guild of America, went on strike when talks with TV producers failed to meet their demands. The writers, who seek to renegotiate their contracts, have brought a large portion of the media industry to a standstill. As Disney owns ABC, whose programming has been seriously hit by the strike, events like this are certainly not good for revenues. Until a settlement is achieved, serious amounts of money will be lost by the networks whose shows have been canceled. [edit] CompetitorsDisney's major competitors are the other large media conglomerates, such as News Corporation (NWS) and Time Warner (TWX), who directly compete with Disney in various business lines. Below is a chart of some of these competitors by line of business.
Below is a chart of box office shares of major media conglomerates. In the film business, Disney also competes directly with smaller entertainment companies like Dreamworks Animation SKG (DWA).
[edit] Studio Market ShareThe following chart shows 2007 domestic studio market share by gross revenue. Total gross revenue in that year was ~$9.7B for the industry as a whole[2].
 Walt Disney Company2004 Data 2005 Data 2006 Data 2007 Data 2008 Data Most Recent Data Available [edit] References
|
The Shelf
|
Edit
History
Bookmark
