Report on Disney Advanced Communication and Analysis

Ankit Choudhary 221024 FMG 22 - A

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Table of Contents

INTRODUCTION .......................................................................................................................... 2

RELEVANCE OF THIS STUDY ....................................................................................................... 3

PURPOSE OF THIS STUDY ........................................................................................................... 3

OBJECTIVE OF THIS STUDY ......................................................................................................... 3

METHODOLOGY AND DATA COLLECTION .................................................................................. 3

ANALYSIS .................................................................................................................................... 4

Media Networks:.................................................................................................................... 5

Parks and Resorts: .................................................................................................................. 6

The Walt Disney Studios ........................................................................................................ 6

Disney Consumer Products .................................................................................................... 6

Disney Interactive .................................................................................................................. 7

UNDERSTANDING THE BUSINESS MODEL ................................................................................. 8

Major Sources of Revenue: .................................................................................................... 8

Volatility of advertising revenues .......................................................................................... 8

Consistency in affiliate fees ................................................................................................... 8

Growing technology investments .......................................................................................... 9

Exposure to movie attendance .............................................................................................. 9

Slowing DVD business ............................................................................................................ 9

Video games investment ....................................................................................................... 9

PEER ANALYSIS ......................................................................................................................... 10

FINDINGS .................................................................................................................................. 12

SUGGESTIONS .......................................................................................................................... 13

FURTHER SCOPE ....................................................................................................................... 13

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INTRODUCTION The Walt Disney Company, commonly known as Disney, is an American diversified

multinational mass media corporation headquartered in Walt Disney Studios, Burbank,

California. It is the largest media conglomerate in the world in terms of revenue. Disney was

founded on October 16, 1923, by Walt and Roy Disney as the Disney Brothers Cartoon Studio,

and established itself as a leader in the American animation industry before diversifying into

live-action film production, television, and travel. Taking on its current name in 1986, it

expanded its existing operations and also started divisions focused upon theater, radio,

music, publishing, and online media. In addition, Disney has created new divisions of the

company in order to market more mature content than it typically associates with its flagship

family-oriented brands.

The company is best known for the products of its film studio, the Walt Disney Studios, and

today one of the largest and best-known studios in Hollywood. Disney also owns and operates

the ABC broadcast television network; cable television networks such as Disney Channel,

ESPN, A+E Networks, Life Time and ABC Family; publishing, merchandising, and theatre

divisions; and owns and licenses 14 theme parks around the world. It also has a successful

music division. The company has been a component of the Dow Jones Industrial Average since

May 6, 1991. An early and well-known cartoon creation of the company, Mickey Mouse, is a

primary symbol of The Walt Disney Company.

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RELEVANCE OF THIS STUDY This study aims to communicate the brand Disney and its strengths that have taken to the top

position amongst its rivals, new opportunities that Disney has discovered and invested in,

major rivals/competitors in the market. Basically, it is to tell the readers that what is Brand

Disney is all about and how has it become so big and major brand in this industry

PURPOSE OF THIS STUDY A study of the Walt Disney company since its inception and a detailed analysis about all the

segments in which they operate and revenue that they acquire due to their market share.

OBJECTIVE OF THIS STUDY The study in the following pages highlight:

A brief analysis of Walt Disney’s areas of business.

The major sources from where it derives its major share of business and revenues

Peer comparison discussing the financials and market share of Disney amongst its

competitors in the industry.

Understanding what has Disney done in terms of marketing its brand worldwide and

amongst all cultures and age groups.

METHODOLOGY AND DATA COLLECTION The data has been collected from

Official website of Disney

Reuters.com

Financial statements of Disney and its competitors.

The methodology is to analyze from the basic detail of Disney about the segments in which it

operate and the sources of revenue it obtains from its operations along with a peer analysis

of the company keeping in mind the financials and market share of all its peers.

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ANALYSIS Few companies have been able to correct with a specific audience as well as Disney has. From

its founding in 1923, the Disney brand has always been synonymous with a quality

entertainment for the entire family. The company, originally founded brothers Walt Disney

and Roy Disney, stretched the boundaries of entertainment during the 20th century to bring

classic and memorable family entertainment around the world. Beginning with simple black-

and-white animated cartoons, the company grew into the worldwide phenomenon that today

includes theme parks, feature films, television networks, theatre productions, consumer

products, and a growing online presence.

In its first two decades, Walt Disney Productions was a struggling cartoon studio that

introduced the world to its most famous character ever, Mickey Mouse. Few believed in

Disney’s vision at the time, but the smashing success of cartoons with sound and the first-

ever full-length animated film, Snow White and the Seven Dwarfs, in 1937 led, over the next

three decades, to other animated classics including Pinocchio, Bambi, Cinderella, and Peter

Pan, live action films such as Mary Poppins and the Love Bug, and television series like Davy

Crockett.

When Walt Disney died in 1966, he was considered the best known person in the

world. By then the company had expanded the Disney brand into film, television, consumer

products, and Disneyland in southern California its first theme park, where families could

experience the magic of Disney in real life. After Walt’s death, Roy Disney took over as CEO

and realized Walt’s dream of opening the 24000 acre Walt Disney World Theme park in

Florida. By the time of Roy’s death in 1971, the two brothers had created a brand that stood

for trust, fund, and entertainment that resonated with children, families, and adults through

some of the most moving and iconic characters, stories, and memories of all time.

The company stumbled for a few years without the leadership of its two founding

brothers. However, by the 1980s. The Walt Disney Company was back on its feet and thinking

of new ways to target its core family-oriented consumers as well as expand into new areas

that would reach an older audience, it launched the Disney Channel, Touchstone Pictures,

and Touchstone Television. In addition, Disney featured classic films during the Disney Sunday

Night Movie and sold classic Disney films on video at extremely low prices in order to reach a

whole new generation of children. The brand continued to expand in the 1990s as disney

tapped into publishing, international theme parks, and theatrical productions that reached a

variety of audience around the world.

Today, Disney is comprised of five business segments: The Walt Disney Studios, which

creates films, recording labels, and theatrical performances, Parks and Resorts, which focuses

on Disney’s 11 theme parks, cruise lines, and other travel-related assets; Disney Consumer

Products, which sells all Disney-branded products; Media Networks, which includes Disney’s

television networks such as ESPN, ABC, and the Disney Channel; and interactive Media.

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Disney’s greatest challenge today is to keep a 90 year old brand relevant and current

to its core audience while staying true to its heritage and core brand values. Disney’s CEO Bob

lager explained, “As a brand that people seek out and trust it opens doors to new platforms

and markets, and hence to new consumers. When you deal with a company that has a great

legacy, you deal with decisions and conflicts that arise from the clash of heritage versus

innovation versus relevance. I’m a big believer in respect for heritage, but I’m also a big

believer in the need to innovate and the need to balance that respect for heritage with a need

to be relevant.”

Internally, Disney has focused on the Disney Difference – “a value-creation dynamic

based on high-standards of quality and recognition that set Disney apart from its

competitors.” Disney leverages all aspects of its businesses and abilities to touch its audience

in multiple ways, efficiently and economically. Disney’s Hannah Montana provides an

excellent example of how the company took a tween-targeted television show and moved it

across its various creative divisions to become a significant franchise for the company,

including millions of CD sales, video games, popular consumer products, box office movies

concerts around the world, and ongoing live performance at international Disneyland resorts

like Hong Kong, India and Russia.

Disney also uses emerging technologies to correct with its consumers in innovative

ways. It was one of the first companies to begin regular podcasts of its television shows as

well as release ongoing news about its products and interviews with Disney’s employees,

staff, and park officials, Disney’s Web site provides insight into movie trailers, television clips,

Broadway shows, virtual theme park experiences, and much more. And the company

continues to explore ways to make Mickey Mouse and his peers more text-friendly and

virtually exciting.

According to internal studies, disney estimates that consumers spend 13 billion hours

“immersed” with the Disney brand each year. Consumers around the world spend 10 million

hours watching programs on the Disney Channel, 800 million hours at Disney’s resorts and

theme parks, and 1.2 billion hours watching a Disney move – at home, in the theatre, or on

their computer. Today, Disney is the 63rd largest company in the world with revenues reaching

nearly $38 billion in 2008.

The Walt Disney Company, together with its subsidiaries and affiliates, is a leading diversified

international family entertainment and media enterprise with five business segments: media

networks, parks and resorts, studio entertainment, consumer products and interactive media.

Media Networks: Media Networks comprise a vast array of broadcast, cable, radio, publishing and digital

businesses across two divisions – the Disney/ABC Television Group and ESPN Inc. In addition

to content development and distribution functions, the segment includes supporting

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headquarters, communications, digital media, distribution, marketing, research and sales

groups.

The Disney/ABC Television Group is composed of The Walt Disney Company’s global

entertainment and news television properties, owned television stations group, as well as

radio and publishing businesses. This includes the ABC Television Network, ABC Owned

Television Stations Group, ABC Entertainment Group, Disney Channels Worldwide, ABC

Family as well as Disney/ABC Domestic Television and Disney Media Distribution. Hyperion

publishing and the Company’s equity interest in A&E Television Networks round out the

Group’s portfolio of media businesses.

Parks and Resorts: When Walt Disney opened Disneyland on July 17, 1955, he created a unique destination built

around storytelling and immersive experiences, ushering in a new era of family

entertainment. More than 55 years later, Walt Disney Parks and Resorts (WDP&R) has grown

into one of the world’s leading providers of family travel and leisure experiences, providing

millions of guests each year with the chance to spend time with their families and friends

making memories that will last forever.

At the heart of WDP&R are five world-class vacation destinations with 11 theme parks and 43

resorts in North America, Europe and Asia, with a sixth destination currently under

construction in Shanghai. WDP&R also includes the Disney Cruise Line with its four ships - the

Disney Magic, Disney Wonder, Disney Dream and Disney Fantasy; Disney Vacation Club, with

11 properties and more than 500,000 individual members; and Adventures by Disney, which

provides guided family vacation experiences to destinations around the globe.

The Walt Disney Studios For more than 85 years, The Walt Disney Studios has been the foundation on which The Walt

Disney Company was built. Today, the Studio brings quality movies, music and stage plays to

consumers throughout the world. Feature films are released under the following banners:

Disney, including Walt Disney Animation Studios and Pixar Animation Studios; Disney nature;

Marvel Studios; and Touchstone Pictures, the banner under which live-action films from

DreamWorks Studios are distributed. The Disney Music Group encompasses the Walt Disney

Records and Hollywood Records labels, as well as Disney Music Publishing. The Disney

Theatrical Group produces and licenses live events, including Disney on Broadway, Disney On

Ice.

Disney Consumer Products Disney Consumer Products (DCP) is the business segment of The Walt Disney Company

(NYSE:DIS) and its affiliates that delivers innovative and engaging product experiences across

thousands of categories from toys and apparel to books and fine art. As the world's largest

licensor, DCP inspires the imaginations of people around the world by bringing the magic of

Disney into consumers' homes with products they can enjoy year-round. DCP is comprised of

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three business units: Licensing, Publishing and Disney Store. The Licensing business is aligned

around five strategic brand priorities: Disney Media, Classics & Entertainment, Disney & Pixar

Animation Studios, Disney Princess & Disney Fairies, Lucasfilm and Marvel. Disney Publishing

Worldwide (DPW) is the world's largest publisher of children's books, magazines, and digital

products and also includes an English language learning business, consisting of over 40 Disney

English learning centers across China and a supplemental learning book program. DPW's

growing library of digital products includes best-selling eBook titles and original apps that

leverage Disney content in innovative ways. The Disney Store retail chain operates across

North America, Europe and Japan with more than 350 stores worldwide and is known for

providing consumers with high-quality, unique products.

Disney Interactive Founded in 2008, Disney Interactive entertains kids, families and Disney enthusiasts

everywhere with world class products that push the boundaries of technology and

imagination. Disney Interactive creates high-quality interactive entertainment across all

digital media platforms, including blockbuster mobile, social and console games, online virtual

worlds, and #1-ranked web destinations Disney.com and the Moms and Family network of

websites.

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UNDERSTANDING THE BUSINESS MODEL

Major Sources of Revenue:

Overall advertising spending is largely driven by the economy, as well as by the

presence of large-scale TV events like the Olympics. Disney's success in attracting

advertising money and affiliate fees is driven by the quality of programming and the

size of the audience it attracts.

Affiliate fees are payments from cable and satellite companies for programming.

These fees provide a stable source of revenue and are expected to grow in virtually

any economic environment. Disney generates the highest affiliate fees in the industry,

largely due to the popularity of its ESPN programming.

Film and DVD syndication and merchandising are both more volatile than Disney's

other sources of revenue. Success in this segment is determined by Disney's ability to

produce hit movies--a difficult task with unpredictable results. A blockbuster movie

can significantly boost revenues for years to come, but a pricey flop can also lead to

extended lower sales.

Domestic theme parks' revenues depend on the number of visitors, which is related

to the strength of the dollar. A weaker dollar encourages more foreign travelers to

visit the U.S. and more domestic travelers to stay within the country, but a stronger

dollar makes products and services (including admissions to Disney's theme parks)

relatively more expensive.

Volatility of advertising revenues

Overall 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 Super bowl coverage. A very

disappointing sports season or flagging TV show ratings can significantly hurt advertising

revenues, as does a general economic downturn.

Consistency in affiliate fees Sensitivity 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.

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Growing technology investments With 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.

Exposure to movie attendance The 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. One way the

company has addressed declining cinema viewership is through enhancing the consumer

movie experience, such as filming shows in I-MAX and 3-D. 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.

Slowing DVD business The 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.

Video games investment As 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, though the company is making large investments in this area. The vast majority

of games released by Disney are geared to lower grade level children, whereas the vast

majority of children would rather play games and not bother with educational games, no

matter how cute the character is. Games such as Kingdom Hearts is a good example.

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PEER ANALYSIS The major competitors of Walt Disney are:

Twenty-First Century Fox Inc

Time Warner Inc

CBS Corporation

Viacom Inc.

A brief comparison is hereby presented of Disney amongst its major competitors (as in year

2012)

PARTICULARS DISNEY

TWENTY-FIRST CENTURY FOX INC

TIME WARNER INC

CBS CORP.

VIACOM INC.

MARKET CAP 115.24B 77.45B 60.81B 33.87B 39.28B EMPLOYEES REVENUE 42.278B 27.675B 28.729B 14.089B 13.887B GROSS PROFIT 8.863B 10.179B 12.016B 6.122B 6.894B GROSS MARGIN 0.210 0.367 0.420 0.434 0.496 OPERATING INCOME 9.260B 8.736B 5.918B 2.951B 3.880B OPERATING MARGIN 0.219 0.315 0.206 0.209 0.279 NET INCOME 5.682B 7.097B 3.019B 1.574B 1.981B NET INCOME MARGIN 0.134 0.256 0.105 0.111 0.142 RETURN ON AVERAGE ASSETS 8.40% 13.10% 4.43% 6.34% 10.59% RETUR ON AVERAGE EQUITY 14.73%

32.72% 10.03% 16.24% 29.14%

EMPLOYEES 166,000 25,600 34,000 20,930 9,880 EPS 3.30

2.90 3.65 2.78 4.45

P/E 19.62 11.60 18.16 20.30 18.53

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NOTES:

Considering the market cap of Disney and its competitors, Disney holds its majority

stake of 35% with fox behind at 24%.

Revenue earnings of the companies are presented as below. Disney maintains is

majority stake at 33% in the current fiscal.

Disney is also the major recruiter in the industry employing 1,66,000 people in its

organizations and businesses thereby signifying that it is engaged in number of

businesses.

Disney earns lowest gross margin in the industry and maintains maximum revenue. It

shows that Disney is busy attracting majority consumers by keeping its margins and

prices low and growing its business with high volumes.

Operating margins are also amongst the lowest in the industry and net income margin

moderate where fox is ahead in both the aspects.

Despite the fact that Twenty first century Fox is major competitor in the market cap

and revenue shares and is ahead in terms of gross, operating and net income margins

in the industry, Earnings per share and P/E ratio of Walt Disney is higher in

comparatively. An investor wishing to invest in the industry leaders would prefer to

invest in Walt Disney in the current scenario.

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FINDINGS From the study that we conducted, it is clear and imperative that Walt Disney is the

market leader and has a huge customer base and majority market share with an on

growing and diverse product portfolio.

A diverse portfolio gives scope that future growth and boom in that sector would allow

Disney to tap its market potential and take advantage of its presence and leadership.

A growing company and preferred for investments is the place where you have to keep

your eyes on.

The company has products that attract people of all ages and cultures thereby making

the customer portfolio also diverse and widespread across the globe. More customers

with diverse products give a possible potential that would outperform the industry

standards.

What is interesting is that the margins of the company is lower as compared to that of

its rivals, the company has a scope to increase its prices and margins when required.

What seems evident is that company is increasing its market share and making its loyal

customers, and the company would increase its margins and profitability in the long

run and seem to growing.

Walt Disney is the market leader, and leaders have already overcome their major

limitations. The limitations of Disney are not due to the lack of resources or leadership.

In fact they are limited by the scope of the business segment they operate in.

o Theme parks are somewhat related to tourism in the world. Any slowdown in

the tourism sector would mean fewer visits to Disney parks.

o DVD business is getting on the verge of major slowdown owing to online

options. Disney has its major source of revenue from DVD and slowdown

thereon is a possible future threat for the entity.

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SUGGESTIONS Disney should start entering into the business segments of other nations as well and

strive to be the leader. Its other rivals have already presence in the local industries in

so many overseas markets.

Moreover focus should be made to increase its margins and take the advantage of

being the market leader. Also is appreciable that the strategic decision of lower prices

to obtain market share is working great for the entity.

FURTHER SCOPE The report can be further improved by obtaining much more data, may be from any internal

executive regarding the practical problems Disney is facing in the current recession era. And

how a much more analysis should be done to get a deep understanding is always a question.