This Company Is No Mickey Mouse Operation

By Greg McFarlane AAA

With its famous history that's become part of popular culture, and the instantly recognizable silhouette in its logo, The Walt Disney Co. (DIS) is only an animation studio in the same way that Johnson & Johnson (JNJ) is only a baby powder manufacturer.

The Many Faces Of Mickey

Through organic growth and acquisition, Disney has become not only a massive entertainment conglomerate but a complex one. The company has achieved that rare and remarkable accomplishment of operating several successful concerns (e.g. ESPN, Lucasfilm, Marvel Entertainment, 32% of Hulu) that most customers don’t even realize are under the Disney umbrella. The company’s subsidiaries and offshoots run the gamut from cruise lines and planned communities to retail stores, each making its own distinct contributions to Disney’s $45 billion in annual revenue. The company has five divisions. In decreasing order of size, they are Media Networks, Parks & Resorts, Studios, Consumer Products and Interactive. Each has various subdivisions and properties.

Media Networks includes the crown jewels in Disney’s operations, the American Broadcasting Company and related networks. ABC, of course, is a staple of over-the-air broadcast television, airing dozens of hours of programming a week, watched by tens of millions, and presumably requiring no introduction to anyone in the United States who owns a set. Disney also owns several television stations, including four of the nation’s largest and highest-billing – New York’s WABC, KABC in Los Angeles, WLS Chicago and San Francisco’s KGO. But that doesn’t begin to cover the extent of Disney’s television coverage. There’s also ABC Family, the Disney Channel, and half of the A+E Networks, plural, which itself includes such basic cable stalwarts as The History Channel, Lifetime, H2 and more. Not to mention the company’s international operations and its 80% interest in ESPN and its family of channels, which boast over 99 million subscribers. Add up the advertiser revenue and cable subscriber fees, and media operations resulted in $20 billion in revenue in 2013, up 5% over the previous year. After expenses these pieces contributed a colossal 64% of Disney’s total operating income.

Glad-handing With The Mouse

To people of a certain vintage, Disney is less synonymous with cartoons than with theme parks. The company is generally recognized as the inventor of the concept, and today its parks and resorts operations go well beyond its Anaheim and Orlando origins.

There are theme parks in Hong Kong, suburban Paris, and coming in 2015, Shanghai. (As for Tokyo Disneyland, it’s operated by a 3rd party under a licensing agreement.) The company welcomed 126,479,000 visitors to its destinations in 2012, which is not only the most of any resort operator in the world, but more than those of the next three combined. Resorts without corresponding theme parks operate in Vero Beach, Fla.; Hilton Head Island, S.C.; and Kapolei, Hawaii. The four ships of the Disney Cruise Line travel the Caribbean, Pacific Coast and around Europe, and together are capable of transporting 11,000 passengers at once. Disney even has a quietly lucrative timeshare division, thus capitalizing on one of the most remunerative businesses known to man. In 2013 the parks and resorts’ receipts totaled $14 billion, adding $2.2 billion in operating income to Disney’s coffers, which dwarfs (no pun intended) even the company’s highest-profile business of all.

A Long Way From Steamboat Willie

Walt Disney Studios starts with the company’s oldest department, the animation operations that made Disney a household name. The division also includes a more recent acquisition in the animation category – Pixar, which Disney purchased in 2006. The remaining operations in this division are Walt Disney Pictures, the company’s live-action filmmaking concern; Disney Music Group, distributor of film and TV soundtracks but also the parent label of several artists intended for adults; Disney Theatrical Group (ice shows, Broadway plays and such); the aforementioned Lucasfilm, acquired by Disney in 2012; and home video and nature documentary operations. All told, Studios revenues reached $6 billion last year, the largest share of that coming from television/subscription video-on-demand operations. Net income for the division was $661 million, a profit margin of 11%.

A Set Of Ears For Every Child

Consumer Products, Disney’s merchandising arm, dates back to the company’s origins and includes three units: licensing, publishing and retail stores. The right to use the images of Mickey Mouse, Buzz Lightyear, that one-eyed creature from Monsters, Inc. and countless other trademarked characters provides a reliable income stream for the company, one that requires little marginal investment. Consumer Products’ publishing department is the world’s largest seller of kids’ books and magazines, operating in 75 languages in 85 nations. And in a triumph of synergy over separation, Disney owns 320 retail outlets throughout North America, Japan and Western Europe, bringing those licensed t-shirts and impractical headgear directly to the consumer. Consumer Products grossed $3.6 billion in the most recent fiscal year, with operating income of $1.1 billion, testament to the wide margins inherent to Disney’s merchandising efforts.

Which leaves Interactive, notable as the only Disney division that runs at a loss, albeit a small one. Interactive includes Disney’s video game operations, including social network and console games. Titles include Cars 2 and Toy Story 3, which take intercompany cross-promotion to a different level and therefore enable Disney to again capitalize on the same creation multiple times. Still, Interactive is Disney’s smallest business, losing $87 million on revenues of just over $1 billion in 2013. However, the nascent department is also Disney’s most improved and fastest growing. Its losses were $216 million in 2012, $308 million in 2011, and that on smaller revenues, meaning that if trends continue Interactive ought to finish in the black before long.

The Bottom Line

Disney is as iconic a company as there is, its name universally recognized and resonant with happiness, nostalgia and other positive emotions. As one of the world’s most reputable companies (as declared by at least one outlet), one of its most profitable (margins of 14%), and one of its largest (a book value of $45 billion), Disney continues to seek new opportunities in its ninth decade of existence. With its stock at an all-time zenith, its price-to-earnings ratio relatively small, and its dividends ever more generous (quadrupling over the last decade), Disney seems ripe for even further growth, putting childlike smiles on the faces of investors everywhere. (For related reading, see How Johnson & Johnson Became A Household Name.)

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