The consumer products division offers one of DIS’s most impressive and long-term sources of multiple revenue streams. This division provides licensing for DIS-owned characters, trademarks and other intellectual property, and is heavily involved in the online, retail and wholesale distribution of its various Disney-branded products. Over the past 10 years, the increased and diversified availability of multiple interactive media platforms has provided the company with additional avenues for distributing and licensing Disney products and media content.
Many predict that Disney’s acquisition of the Marvel, Pixar and Lucasfilm brands makes the company poised for inevitable market and box office domination. In fact, Marvel, which has already produced strong box office returns, has new movie releases scheduled for every year until 2020, and at the end of 2015 Lucasfilm will be delivering its strongly anticipated new Star Wars movie.
DIS Reliance on Cable Network Revenue Raises Some Concerns
While many investors have highly anticipated the potential gains from Disney’s upcoming box-office film releases, the reality is that Disney’s movie division only accounts for about 12% of its profits. Furthermore, box-office movie success can be hit-or-miss, which raises the potential for varied degrees in profitability from the DIS studios segment in the near future. Many of the films it releases are derivatives of established brands, however, and the downside stems mostly from subdued profitability than out-right losses on projects.
Currently, ESPN accounts for over 50% of total profits, and charges the highest affiliate fee of any basic cable channel. This concerns those who have closely watched the rapidly changing media landscape, as consumers have increasingly turned away from the traditional subscription cable model because of persistent increases in services rates, in favor of less-confining and more affordable media streaming services. If streaming services continue to cannibalize the traditional cable network market, Disney Channels and other DIS cable assets could suffer from decreasing revenue from subscriber, licensing, advertising fees. However, it is important to note that unlike traditional cable networks, streaming services have had some difficulty increasing their market share in the sports entertainment industry given this medium’s difficulty with delivering the live, real-time sports coverage that fans desire.
What to Expect in the Future
We feel DIS is a good investment because of the longevity that its brands have shown and the various ways in which its brands can be utilized through film, video, television, clothing, toys, and so on. Though it is heavily dependent on its cable network channel revenues, it has other impressive sources of income including new high-profile acquisitions and products that should return impressive revenues in the near future. For those looking to invest in the entertainment industry, DIS is a great choice, trading at only 21 times forward earnings for a company with better prospects than the average company and growing faster than the aggregate economy. DIS’s run over the last few years has been amazing, but there is no reason it cannot continue as DIS appears to be fairly priced in a market some believe carries a frothy valuation.
