I firmly believe that The Walt Disney Company (NYSE:DIS) is destined to be one of the great growth stocks of this decade. Yet when you ask most people how Disney makes its money, they’ll tell you theme parks, movies or toys. A lot of people also believe that Disney’s a stodgy old stock for conservative investors.
It’s time to dispel these misconceptions about Disney and let you know what makes this stock shine.
First, let’s examine how much revenue Disney generated from its six business segments over the past four years.
From this chart, we can see that Disney generates nearly half of its revenue from its Media Networks segment – ABC, ESPN and the Disney Channel – and its subsidiaries. The proportion of this segment to its overall revenue has also steadily increased increasing over the past four years. This makes Disney a content provider on par with or .
What makes Disney’s Media Networks business so important is that while it generates 46% of the company’s revenue, it brings in 57% of its total operating income – more than the rest of the Disney empire combined.
Disney’s vast media empire was the brainchild of former CEO Michael Eisner, who oversaw the takeover of Capital Cities/ABC for $19 billion in 1996. Capital Cities was the parent company of ESPN.
Eisner attempted a two-pronged approach to make ESPN profitable – by offering its ESPN branded products at Disney’s theme parks and retail stores, and by expanding ESPN overseas as an international sports channel.
However, things didn’t quite pan out the way Eisner imagined. ESPN integration in theme parks and retail shops is minimal, and its international affiliate fees only account for 11% of the network’s total revenue. However, its overall revenue is still massive – ESPN generates approximately $10.3 billion in annual revenues, more than half of the rest of the Media Networks segment combined.
A research report from Wunderlich found ESPN to be worth $40 billion. The report values the Disney Channel at $10 billion, while ABC Networks, which has declined dramatically over the past fifteen years, is only worth $1.7 billion.
Fox Sports and NBC Sports have emerged as strong competitors, which caused sports broadcast rights fees to soar. Last year, the MLB doubled its annual fees for broadcast rights, raking in a combined $12.4 billion from ESPN, Fox and TBS. In 2011, ESPN paid $15.2 billion for an eight year deal for the rights to broadcast NFL games. Going forward, these rising fees could crimp the profitability of sports networks.