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Show Biz Kids: The Walt Disney Company (DIS), Time Warner Inc. (TWX)

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While the poor people sleepin’

All the stars come out at night

Steely Dan (Show Biz Kids: Countdown to Ecstasy)

With sarcasm firmly planted, Steely Dan was in fact stating a fact that even today has investors researching successful conglomerates who operate in the entertainment industry. They’re generating significant sales and gobbling up and dispensing of divisions as fast as the movie popcorn consumers munch as they watch creative offerings from these corporations. However, everything is not always of stellar performance; it’s an industry sometimes as fickle as the throwaway films and programming often offered.

I’m focusing today on The Walt Disney Company (NYSE:DIS). They recently reported their first quarter earnings for fiscal 2013 (period ended Dec. 29, 2012).

A gold statuette for…

Revenues

Media Networks, Parks and Resorts, and Consumer Products revenues were each up 7%. The Interactive segment revenue was up 4%. Studio Entertainment revenue was down 5 % ($1.5 billion).

What can investors take away from these reported numbers? The company has strength across their segments overall, which contributed to overall revenue growth of 5% for the quarter.

Consider the Company’s statement, “The decrease at home entertainment was due to lower unit sales reflecting the strong performance of The Lion King Diamond Release in the prior-year quarter compared to the Cinderella Diamond Release in the current quarter. Additionally, the prior-year quarter included Cars 2…” (Walt Disney Press Release, first quarter earnings for fiscal 2013, Feb. 5, Burbank, California).

Investors should consider that, although overall revenue was up, The Walt Disney Company (NYSE:DIS) is at the mercy of the films and programming produced and their success or lack thereof. Investors should also consider rising production, marketing, and distribution costs, and the costs inherent in securing contracts from sports leagues for the rights to major sporting events and season games. The company’s ESPN experienced contractual rate increases for the NFL and college football.

Noteworthy to investors: Company reputation

The Walt Disney Company (NYSE:DIS) scored high in The Harris Poll 2013 RQ® (Survey of the U.S. General Public Using the Reputation Quotient®). Harris Interactive rated 60 large American companies. The basis of their ratings was vital characteristics including product quality, trust, social responsibility and treatment of employees. The Walt Disney Company ranked third.

Exit stage left…

Overall segment operating income was down 3%. Net income was down 6%. Therefore, investors should look at companies operating expenses in this industry and whether they can consistently generate greater sales to offset rising entertainment industry production expenses.

Walt wouldn’t be impressed

Cash provided by operations was down 34%. Free cash flow was down 46%. Investors should consider how entertainment companies are handling the shifting viewing proclivities of today’s consumers. Walt Disney Studio Entertainment operating income was lower in the quarter because of decreases in home entertainment and theatrical distribution. Consumers are not always going in droves to mall mega-plexes.

Where are they going? Increasingly, they’re going from the dinner table to the living room or man-cave couch. The Walt Disney Company (NYSE:DIS) experienced an increase in television and subscription video on demand (TV/SVOD) distribution. Furthermore, the popcorn’s less expensive at home. Moreover, it’s extremely expensive for entertainment companies to engage in widespread marketing and distribution of films.

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