Walt Disney's Valuable Content

If Walt Disney's (NYSE:DIS) most recent quarterly report provides any insight about the current state of the economy, its that people will do whatever they can to block it out of their minds. That's a wonderful thing for a company like Disney. For the fiscal third quarter ended July 3, 2010 diluted earnings per share for the third quarter increased 31% to 67 cents from 51 cents in the prior-year quarter. Revenues were up 16% to $10 billion from $8.5 billion.

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Delightful Content
Fueled by three blockbuster movies, Disney illustrates the value of quality content. As the world's largest media company, Disney produced the year's top three movies in "Toy Story 3", "Alice in Wonderland" and "Iron Man 2", which generated a combined $2.5 billion in global ticket sales. As a result, the company's movie unit swung to an operating profit of $123 million, versus a $12 million loss in the year ago quarter.

Disney's movie performance confirms two important points. First, quality content is tremendously valuable. In that space, Disney stands tall. A blockbuster like the "The Lion King" still continues to derive royalties for the company. Conversely, last year when the movie division lost money, it was in part due to poor performing titles like "Hannah Montana." Second, even in weak economic environments, entertainment outlets like movies, sporting events and concerts still experience healthy demand as they offer a great way to escape reality, even if only for a brief period.

Valuable Assets
The company's ESPN sports network also had a excellent showing in the quarter. As the undisputed sports channel on cable television today, ESPN is a tremendously valuable asset to Disney. From a larger perspective, media assets have the ability to generate significant recurring revenue, a tremendous advantage during weak economies. Recession or not, people will watch football on Saturday and Sunday. Valuable content is why noted value investor Seth Klarman counts News Corp (Nasdaq:NWSA) as his biggest holding. To be sure, Klarman was buying News Corp when it traded in the single digits. Since then Klarman has trimmed the position as shares approached $17, but it still remains a substantial holding. In fact the media industry overall has had a strong showing recently with CBS (NYSE:CBS) and Time Warner (NYSE:TWX) all trading near 52-week highs.

The Bottom Line
A great quarter from Disney is just that, one great quarter. A lot of things worked well including three blockbuster movies and the World Cup boosting ESPN ratings. But great movies are not a given, even for Disney, and the World Cup only happens ever four years. Even Disney's management was very cautious about the rest of the year. Investors may wish to wait for the next act on this one. (For more, see Best Amusement Parks For Your Buck.)

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