How Disney Makes Money: Media Networks and Parks, Experiences

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The Walt Disney Co. (DIS) is a diversified global entertainment company that operates theme parks, resorts, a cruise line, broadcast TV networks, and related products. The company also produces live entertainment events, and produces and streams a broad array of film and TV entertainment content through its new digital-content streaming services.

Disney faces an unusually large number of competitors including: ViacomCBS Inc. (VIAC), Comcast Corp. (CMCSA), Sony Corp. (SNE), AT&T Inc. (T), Netflix Inc. (NFLX), Apple Inc. (AAPL), and Inc. (AMZN); and smaller niche rivals including theme park and resort companies Six Flags Entertainment Corp. (SIX), SeaWorld Entertainment Inc. (SEAS), and Hilton Worldwide Holdings Inc. (HLT).

Key Takeaways

  • Disney is a diversified global entertainment company that operates theme parks, resorts, broadcast networks and streams TV shows and movies.
  • Disney’s Parks, Experiences and Products business generates the most revenue, but Media Networks produces the most profits.
  • The company sharply boosted its bet on streaming film and TV content, aided by its purchase of 21st Century Fox and raised stake in Hulu.
  • In a surprise move, Disney on Feb. 25 promoted Bob Chapek, chairman of Disney Parks, Experiences and Products, to Chief Executive Officer. Robert Iger, Disney’s longtime CEO, will stay on as executive chairman until 2021.

Disney’s Financials

Disney posted net income of $11.6 billion on revenue of $69.6 billion for fiscal year (FY) 2019, which ended September 28, 2019. Revenue was strong, rising 17.1% compared to 7.8% in FY 2018. But net income fell 11.3% in FY 2019 versus a rise of 39.5% the previous year. Disney’s earnings were especially hurt by soaring expenses largely as a result of the March 2019 acquisition of Twenty-First Century Fox Inc. and its consolidation with Hulu.

The strong revenue growth continued into Disney’s first quarter of FY 2020, which ended December 28, 2019. Revenue grew 36.3% compared to the same period a year ago. That growth was aided by November’s launch of Disney+, which had a total of 26.5 million paid subscribers and average monthly revenue per paid subscriber of $5.56 as of the end of the quarter. But net income continued to slide, falling 22.9% year-over-year (YOY). Expenses related to the consolidation of the Twenty-First Century Fox and Hulu continued to weigh on profits, but technology and marketing costs due to the launch of Disney+ were also factors.

Disney’s Business Segments

Disney operates through four primary business segments: Media Networks; Parks, Experiences and Products; Studio Entertainment; and Direct-to-Consumer & International. The company breaks out revenue and non-GAAP operating income for each segment. The pie charts above do not include segments with operating losses, such as Disney’s Direct-to-Consumer & International business.

Media Networks

Disney’s Media Networks segment operates a long list of properties, including: cable networks such as Disney, ESPN, Freeform, FX, and National Geographic; ABC broadcast television network and eight domestic television stations; production and distribution; and National Geographic magazines. The segment’s revenue comes from affiliate fees, advertising, as well as licensing fees and other revenue. Revenue grew 13.3% during FY 2019 to $24.8 billion, comprising about 35% of Disney’s total revenue. Operating income grew 1.9% to $7.5 billion. Despite that anemic growth, the segment still comprised over 44% of operating income for all segments.

Parks, Experiences and Products

Disney’s Parks, Experiences and Products segment is comprised of theme parks and resorts in Florida, California, Hawaii, and Paris, as well as ownership interests in resorts in Hong Kong and Shanghai. It also includes a cruise line and vacation club. Revenue comes mainly from selling theme park admissions, food, beverages, and resort and vacation stays. Revenue grew 6.2% during FY 2019 to $26.2 billion, comprising about 37% of Disney’s total revenue. Operating income grew 10.9% to $6.8 billion, comprising nearly 40% of operating income for all segments.

Studio Entertainment

Disney’s Studio Entertainment segment is engaged in motion picture production and distribution through the Walt Disney Pictures, Twentieth Century Fox, Marvel, Lucasfilm, Pixar, and other companies. The segment also produces and distributes live entertainment and music, among other activities. Revenue comes from licensing motion pictures to theaters; sale of motion pictures in DVD, Blu-ray, and other formats; and licensing fees, stage play ticket sales, and post-production services. Studio Entertainment’s revenue grew 10.6% during FY 2019 to $11.1 billion, comprising about 16% of both Disney’s total revenue and operating income. The segment’s operating income fell 10.6% to $2.7 billion in FY 2019.

Direct-to-Consumer & International

Disney’s Direct-to-Consumer & International segment includes branded international TV networks and channels such as Disney, ESPN, Fox, National Geographic, and Star; its new direct-to-consumer streaming service, named Disney+, and also ESPN+, Hotstar, and Hulu. The segment’s revenue includes advertising, affiliate fees, and subscription fees. Revenue grew 173.8% during FY 2019 to $9.3 billion, comprising over 13% of total revenue. The segment posted an operating loss of $1.8 billion in FY 2019, nearly 2.5 times the operating loss reported in FY 2018.

A note to readers that the segment revenue and operating-income figures in the breakdowns above and in the pie charts do include inter-segment transactions.

Disney’s Recent Developments

Disney last month promoted Bob Chapek to Chief Executive Officer (CEO) from his most recent role as Chairman of Disney Parks, Experiences and Products. He succeeded Robert A. Iger who will be Executive Chairman until 2020.

In SEC filings February, Disney said that it had recently closed its theme parks in both Shanghai and Hong Kong due to coronavirus. Disney said that the closures would hurt its Q2 and full-year results.

Source: Investopedia

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