The State of The Walt Disney Company 2017
DISCLOSURE: I am a shareholder of The Walt Disney Company (NYSE:DIS)
The Walt Disney Company has gone strength to strength over the last few years. Over a five year period, Disney (NYSE:DIS) stock has gone from 44.4 to closing at 110.67 yesterday. This is no doubt due to Bob Iger and the acquisition-heavy reign he’s had on the company since 2005. Last year was to Iger, his most important year to date. He just came off from the previous year rebooting Star Wars and having a run of successes at the box office. There’s a lot that happened. Disney, somehow beating 2015, had their most successful year to date.
ABC has been seeing a solid year in ratings and performance, and is generally performing as is expected.
ESPN has been dragging Disney’s stock down for years. This is due to cable cutters who seek alternate ways to get content without paying the overblown fees for cable services. ESPN is moving to online platforms where possible but this is proving unsuccessful. The losses are having a direct impact on Disney stock and Bob Iger has blamed the network for the prediction that Disney will not have nearly as a successful year as in the past, calling the 2017 financial year an ‘anomaly’. In the last few days, Sports Illustrated has reported that ESPN are laying off on-screen talent in an attempt to lower production costs by tens of millions of dollars. It’s the first in what is sure to be a long string of cuts at the network.
In August, Disney acquired a minority stake (33%) of BAMTech which Disney sees as an easier and more affordable way of distributing ABC and ESPN content directly to the consumer. The full effect of the BAMTech minority stake is likely to be discussed at Disney’s Annual Shareholder Meeting tomorrow.
Consumer Products and Interactive Media
This is somewhat a dull area for Disney. For a while, the Interactive division has been trying, unsuccessfully, to break into games, in PC, Console and Mobile. 2016 was the year that Disney finally gave up. Though they did make some respectable products over time (Epic Mickey and Disney Infinity) the division is simply losing too much money to justify creating games. Disney Infinity’s servers were shut down in June.
Maker Studios launched Revelmode in early 2016, ahead of the last shareholder meeting. The network launched by PewDiePie featured his close collaborators and was a way for the creators to branch off into other forms of media. Following a Wall Street Journal investigation into PewDiePie, Disney severed ties with the influencer and the future of Revelmode is unknown. Furthermore, Disney Interactive has layed off much of Maker’s employees, making the network a bare-bones company. It’s uncertain what effect this will have at this time. They are also cancelling most partnerships, looking to keep only 1,000 creators
Disney’s 2007 acquisition of Club Penguin has been largely successful. However, this year the game in it’s current form is going to be shut down and a newer version, exclusive to mobile, will take over.
Disney Store and Publishing have been successful thanks to the products that have been produced by the Studio Entertainment businesses. Star Wars: Rouge One and Captain America: Civil War saw a predictably large number of tie-ins. These two divisions are helping the overall profit when Interactive Media is generating losses.
Studio Entertainment, once again, was the most successful studio in terms of Box Office. The takings were roughly $7bn, beating 2015’s $5.8bn. Pixar’s Finding Dory became the second highest grossing domestic film in 2016 at $460m, only behind Lucasfilm’s Star Wars: Rogue One and ahead of Marvel’s Captain America: Civil War. All the films aforementioned broke the billion mark internationally, including Jungle Book and Zootopia.
Disney, as usual, was nominated for all major film awards for their films. Zootopia took the majority of the animation awards with Moana nominated in the same categories. Pixar’s Piper was acclaimed as the best animated short. Visual effects in Jungle Book were also heavily awarded for their hyper-realism.
As mentioned, the trickle down effect from Studios to Consumer Products was once again record breaking. Proving that Disney can make products that connect with varied other products to maximise profit across the company.
Parks and Resorts
Other than Studio Entertainment, Park and Resorts is the most profitable division of The Walt Disney Company. 2016 was perhaps the biggest year for the company since Walt Disney World opened in 1971.
Bob Chapek has been trying to cut costs across the board in an attempt to increase profits and protect the bottom line. Though still incredibly successful, Hong Kong Disney Resort and Disneyland Paris are seeing lower attendance and not seeing profits. The division has acted on these issues this year. The Walt Disney Company announced a $1.4bn investment into Hong Kong Disney Resort to renovate the Disneyland Park with new themed lands and attractions, including the complete overhaul of Sleeping Beauty Castle, currently a direct clone of the castle in Disneyland Resort.
Disneyland Paris turns 25 this year. It was announced in February that The Walt Disney Company seeks to take over EuroDisney, the company the owns and operates the resort. Furthermore, they announced a $1.5bn investment in the resort. The EuroDisney Group have had only one profitable year since the resort opened in 1992 and has been restructured three times in its history. The Walt Disney Company had been owed €1bn in loans before the takeover bid was launched. Investment in the resort is clearly needed and will hopefully change its fortunes over time. The timing of this action was vital as Paris’ tourism has been deteriorating since 2015 due in part to a number of terrorism events.
June 2016 saw the opening of Shanghai Disney Resort, Disney’s first resort in mainland China. Being ‘authentically Disney; distinctly Chinese’ the resort was built with cultural appreciation as the number one priority. A number of changes to the Magic Kingdom formula were changed including the abolishment of Main Street USA and a Disneyland Railroad. The resort features a Tron rollercoaster in Tomorrowland, the most technically advanced Pirates of the Caribbean ride in history and the biggest castle of all the Disney Parks. The resort cost $5.5bn, directly funded by The Walt Disney Company.
Disney will not be as successful this coming financial year. ESPN, Disneyland Paris and Hong Kong Disneyland are pulling the company away from further successes. This year sees the launch of Star Wars: The Last Jedi. Though we can guarantee that it’ll be successful, there’s uncertainty whether the hype will be as strong as the last two Star Wars releases. Disney Animation has no films releasing this year, as is the norm. Pixar has Cars 3, which will likely help Consumer Products, and Coco, an original film which will likely be successful due to the cultural themes in the film. Pandora: The World of Avatar opens in Disney’s Animal Kingdom this summer, bringing a much needed new land to the park.
Tomorrow’s meeting will likely include announcements, which should provide clarity going forward.