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 Disneys 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 20
th
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
Disneys 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 Walts death, Roy Disney took over as CEO
and realized Walts dream of opening the 24000 acre Walt Disney World Theme park in
Florida. By the time of Roys 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 Disneys 11 theme parks, cruise lines, and other travel-related assets; Disney Consumer
Products, which sells all Disney-branded products; Media Networks, which includes Disneys
television networks such as ESPN, ABC, and the Disney Channel; and interactive Media.
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Disneys 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. Disneys 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. Im a big believer in respect for heritage, but Im 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. Disneys 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 Disneys employees,
staff, and park officials, Disneys 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 Disneys 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 63
rd
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 Companys 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 Companys equity interest in A&E Television Networks round out the
Groups 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 worlds 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.