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Bottom Line: Disney Record Results But Market Outlook Negative?

Walt Disney Co. (DIS)

Bottom Line: Star Wars brand drove a quarter with record income for DIS, but contraction in Media Networks is a concern for analysts and investors going forward. It should be an interesting year for DIS as pipeline includes Finding Dory, Captain America: Civil War, more Disney Infinity but the main areas to watch are Star Wars merchandise and the future of ESPN.

Questions: What other areas or products can drive growth for DIS this year? Are you positive overall on ESPN? Can Star Wars alone, between licensing and merchandise, abate concern with Media Networks at least this year?

Dissecting a huge media conglomerate’s financials is a monumental task, so I won’t necessarily be posting every single stat or figure but want to address the above question while overviewing the company’s current business.

DIS reported 2016Q1 earnings this week, with record net income however the market sentiment is still negative as indicated by the firm’s stock movements after earnings release. So what’s behind this divergence? The firm’s main profit drivers are Media Networks (cable channels, ABC & ESPN etc) and Studio Entertainment (movies, including Star Wars and Marvel titles) with the latter almost doubling income since last year due to Star Wars: The Force Awakens release.

DIS Segments 2016Q1

The key here is that Media Networks income contracted since last year despite sales being up, as costs are also increasing on a relative basis. Driving this is partly timing, as the College Football Playoffs occurred during this quarter, but also rate increases for sports programming and production costs going up. A general concern is the sentiment around ESPN in particular, where programming costs are up and cable subscribers are “cutting the cord” adversely impacting advertising potential. To combat this, DIS is trying to expand ESPN mobile offerings, as WatchESPN now displays all live shows and events in order to have more eyeballs on advertising. I’ve even heard rumblings that DIS should consider an approach similar to HBO Now, offering ESPN content separate from a cable contract for a subscription fee. I’d say this is a last resort, at present.

DIS Media Networks 2016Q1

DIS Studio Entertainment 2016Q1

As for gaming, the Consumer Products & Interactive Media is actually quite healthy but this of course seasonal and this quarter included holiday 2015. Revenue and income were boosted by licensing from Star Wars i.e. Star Wars: Battlefront while Disney Infinity results were lower (sales volume down, inventory up). Even compared to last year, when Frozen merch was all the rave especially with kids accumulating annual sales of $3 billion, Star Wars gear has just begun to reap benefits and Nielsen expects it to account for $5 billion in revenue across this year.

Last note is that DIS results are being propped up by the steady Parks and Resorts segment, up more than 20% since last year driven by Americas region. I see this as continuing to be a key component of the firm’s diversified approach, especially as the cable landscape changes and products/interactive media remains seasonal and dependent on the strength of content and titles.

Sources: Walt Disney Co. Form 1oQ February 9, 2016; Walt Disney Co. Q1 FY2016 Earnings; Nielsen

-Dom

 

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My Approach: Bottom Line, Limited Clutter & Discussion-Oriented

Before I dive into more substantive posts, up front I wanted to address my approach to covering the areas of gaming, media, technology and the like. My experience is in financial data and writing, and part of my process is sifting through all the numbers and boiling it down to the key points. Like any good analysis or argument, I try my best to back these thoughts up with supporting details and sources but ultimately, we all know it’s about the bottom line.

With that in mind, I like to isolate the driving factors behind a certain result or trend. For instance, which underlying business is driving a company’s performance? Why is a game selling well in one region and not another? Should a company diversify across hardware and software, or will the cost outweigh benefits? Sure these are complex matters, but getting caught up in the minutiae is not something I’d like to do.

Note I won’t be striving for covering 24/7 news, or live blogging, or merely presenting statements or numbers without any context. Rather I’d like to drum up discussion. Am I missing something? Do you agree or disagree? As people, we all come from different backgrounds and perspectives so let’s express those viewpoints. As I noted in my first post and my bio, I realize this is the internet and it’s ambitious to think all our chats will be constructive. This is my hope here, and we can go from there!

-Dom

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Introducing Working Casual: Gaming, Media & Tech Blog

Hi all! I know it’s looking basic at this point, but bear with me while I settle in to my new blog. Welcome to Working Casual: Gaming, Media & Tech Blog! Written by yours truly, DomsPlaying (just Dom is fine).

As noted in the sidebar, this is a place where I’d like to interact with the community to discuss video games, the gaming industry and related businesses including media and technology in a way that we all can understand.

My background covers both these various industries and research, business and analysis as I have degrees in both Economics and Journalism & Media Studies, and currently work in the financial data field with hobbies of gaming, following digital media and keeping up on the latest technology. I had a brief foray into blogging earlier in my career, and have been meaning to revisit this interest as the medium evolves and digital media industry expands overall. Not to mention I need to use those writing skills! On a personal level, I’m based in the Tri-State and come from a family-oriented, Italian-American background that loves good food and fun times together.

So ultimately I would like to initiate discussions on topics related to all of these, and provide perspective while also chatting about the games I’m playing, media stories I’m following and technology I’m using. I know that’s ambitious for the internet, but let’s roll with it for now.

I look forward to expanding on this first post, and meeting like-minded folks that have similar interests. Thanks for reading, and feel free to reach out via social media links to the right or email as I’m always open for a good chat or debate.

-Dom