CASE 21
The Walt Disney Company: Its
Diversification Strategy in 2020
®
John E. Gamble
Texas A&M University-Corpus Christi
T
he Walt Disney Company was a broadly diversified media and entertainment company with a
business lineup that included theme parks and
resorts, motion picture production and distribution,
cable television networks, the ABC broadcast television network, eight local television stations, and a
variety of other businesses that exploited the company’s intellectual property. The company’s revenues
had increased from approximately $52.5 ­billion in
fiscal 2015 to approximately $62.6 ­billion in fiscal
2019 and its share price had regularly outperformed
the S&P 500. While struggling somewhat in the mid1980s, the company’s performance had been commendable in almost every year since Walt Disney
created Mickey Mouse in 1928.
Much of the company’s growth in revenues had
resulted from acquisitions of leading motion picture
production companies. In 2006, the Walt Disney
Company completed the $7.4 ­billion acquisition of
Pixar, the producer of Toy Story—the highest grossing film of 1995. In 2009, Disney acquired Marvel
Entertainment for $4.2 ­billion, which had produced
highly successful Iron Man, Spider-Man, and Incredible
Hulk films. Walt Disney acquired Lucasfilm in 2012
in a $4 ­billion cash and stock transaction. Lucasfilm
was founded by George Lucas and was best known
for its Star Wars motion picture franchise. However,
the company’s 2019 acquisition of 21st Century Fox
for $71.3 ­billion in cash and stock had the potential
to radically improve its future financial performance.
The acquisition of 21st Century Fox extended
Disney’s impressive collection of media franchises to
include 20th Century Fox, FX, National Geographic
Channel, and Star India. Twenty-First Century Fox
also held a 30 ­percent ownership interest in Hulu
and a 39.1 ­percent stake in Sky, Europe’s leading
entertainment company that served nearly 23 ­million
households in five countries. The Fox broadcast network, 29 local television stations, Fox News, and Fox
Sports were not included in the merger and make
up a new independent, public company named Fox
Corporation.
Disney CEO Robert Iger commented on the
ability of the acquisition to further boost shareholder value.
The acquisition of 21st Century Fox will bring significant financial value to Disney and the shareholders of
both companies, and after six months of integration
planning we’re even more enthusiastic and confident in
the strategic fit of these complementary assets and the
talent at Fox.
The combination of Disney and 21st Century Fox
is an extremely compelling proposition for consumers.
It will allow us to create even more appealing high-­
quality content, expand our direct-to-consumer offerings
and international presence, and deliver more exciting
and personalized entertainment experiences to meet the
growing demands of consumers worldwide.1
Just weeks after releasing impressive first quarter
fiscal 2020 results for the combined company, Walt
Disney Company announced the retirement of CEO
Bob Iger—the architect of the series of acquisitions that
had compounded the company’s revenues and drove
shareholder value for nearly 15 years. The February 25,
2020 announcement stated that Mr. Iger would
remain Executive Chairman and direct the company’s creative endeavors through 2021, with Mr. Bob
Copyright ©2021 by John E. Gamble. All rights reserved.
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Chapek becoming the Walt Disney Company’s seventh CEO. Mr. Chapek, a 27-year veteran of the company had most recently held the title of Chairman of
Disney Parks, Experiences, and Products and would
not only be required to fully integrate the 21st Century
Fox creative assets and operations into the Disney
organization, but would also have to contend with the
effects of the novel Coronavirus (COVID-19), which
were just becoming known to the world.
COMPANY HISTORY
Walt Disney’s venture into animation began in 1919
when he returned to the United States from France,
where he had volunteered to be an ambulance driver
for the American Red Cross during World War I.
Disney volunteered for the American Red Cross only
after being told he was too young to enlist for the
United States Army. Upon returning after the war,
Disney settled in Kansas City, Missouri, and found
work as an animator for Pesman Art Studio. Disney,
and fellow Pesman animator, Ub Iwerks, soon left the
company to found Iwerks-Disney Commercial Artists
in 1920. The company lasted only briefly, but Iwerks
and Disney were both able to find employment with a
Kansas City company that produced short animated
advertisements for local movie theaters. Disney
left his job again in 1922 to found Laugh-O-Grams,
where he employed Iwerks and three other animators
to produce short animated cartoons. Laugh-O-Grams
was able to sell its short cartoons to local Kansas
City movie theaters, but its costs far exceeded its
revenues—forcing Disney to declare bankruptcy in
1923. Having exhausted his savings, Disney had only
enough cash to purchase a one-way train ticket to
Hollywood, California, where his brother, Roy, had
offered a temporary room. Once in California, Roy
began to look for buyers for a finished animated-live
action film he retained from Laugh-O-Grams. The
film was never distributed, but New York distributors
Margaret Winkler and Charles Mintz were impressed
enough with the short film that they granted Disney
a contract in October 1923 to produce a series of
short films that blended cartoon animation with live
action motion picture photography. Disney brought
Ub Iwerks from Kansas City to Hollywood to work
with Disney Brothers Studio (later to be named Walt
Disney Productions) to produce the Alice Comedies
series that would number 50-plus films by the series
end in 1927. Disney followed the Alice Comedies
series with a new animated cartoon for Universal
Studios. After Disney’s Oswald the Lucky Rabbit cartoons quickly became a hit, Universal terminated
Disney Brothers Studio and hired most of Disney’s
animators to continue producing the cartoon.
In 1928, Disney and Iwerks created Mickey
Mouse to replace Oswald as the feature character in
Walt Disney Studios cartoons. Unlike with Oswald,
Disney retained all rights over Mickey Mouse and all
subsequent Disney characters. Mickey Mouse and
his girlfriend, Minnie Mouse, made their cartoon
debuts later in 1928 in the cartoons, Plane Crazy, The
Gallopin’ Gaucho, and Steamboat Willie. Steamboat
Willie was the first cartoon with synchronized sound
and became one of the most famous short films of
all time. The animated film’s historical importance
was recognized in 1998 when it was added to the
National Film Registry by the United States Library
of Congress. Mickey Mouse’s popularity exploded
over the next few decades with a Mickey Mouse Club
being created in 1929, new accompanying characters
such as Pluto, Goofy, Donald Duck, and Daisy Duck
being added to Mickey Mouse cartoon storylines,
and Mickey Mouse appearing in Walt Disney’s 1940
feature length film, Fantasia. Mickey Mouse’s universal appeal reversed Walt Disney’s series of failures in
the animated film industry and became known as the
mascot of Disney Studios, Walt Disney Productions,
and The Walt Disney Company.
The success of The Walt Disney Company was
sparked by Mickey Mouse, but Disney Studios also
produced several other highly successful animated
feature films including Snow White and the Seven
Dwarfs in 1937, Pinocchio in 1940, Dumbo in 1941,
Bambi in 1942, Song of the South in 1946, Cinderella
in 1950, Treasure Island in 1950, Peter Pan in 1953,
Sleeping Beauty in 1959, and One Hundred-One
Dalmatians in 1961. What would prove to be Disney’s
greatest achievement began to emerge in 1954
when construction began on his Disneyland Park
in Anaheim, California. Walt Disney’s Disneyland
resulted from an idea that Disney had many years
earlier while sitting on an amusement park bench
watching his young daughters play. Walt Disney
thought that there should be a clean and safe park
that had attractions that both parents and children
alike would find entertaining. Walt Disney spent
years planning the park and announced the construction of the new park to America on his Disneyland
television show that was launched to promote the
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The Walt Disney Company: Its Diversification Strategy in 2020
new $17 ­million park. The park was an instant success when it opened in 1955 and recorded revenues
of more than $10 ­million during its first year of operation. After the success of Disneyland, Walt Disney
began looking for a site in the eastern United States
for a second Disney park. He settled on an area near
Orlando, Florida in 1963 and acquired more than
27,000 acres for the new park by 1965.
Walt Disney died of lung cancer in 1966, but upon
his death, Roy O. Disney postponed retirement to
become president and CEO of Walt Disney Productions
and oversee the development of Walt Disney World
Resort. Walt Disney World Resort opened in October
1971—only two months before Roy O. Disney’s death in
December 1971. The company was led by Donn Tatum
from 1971 to 1976. Tatum had been with Walt Disney
Productions since 1956 and led the further development of Walt Disney World Resort and began the planning of EPCOT in Orlando and Tokyo Disneyland.
Those two parks were opened during the tenure of
Esmond Cardon Walker, who had been an executive
at the company since 1956 and chief operating officer since Walt Disney’s death in 1966. Walker also
launched The Disney Channel before his retirement
in 1983. Walt Disney Productions was briefly led by
Ronald Miller, who was the son-in-law of Walt Disney.
Miller was ineffective as Disney chief executive officer
and was replaced by Michael Eisner in 1984.
Eisner formulated and oversaw the implementation of a bold strategy for Walt Disney Studios, which
included the acquisitions of ABC, ESPN, Miramax
Films, and the Anaheim Angels, and the Fox Family
Channel; the development of Disneyland Paris,
Disney-MGM Studios in Orlando, Disney California
Adventure Park, Walt Disney Studios theme park in
France, and Hong Kong Disneyland; and the launch
of the Disney Cruise Line, the Disney Interactive
game division, and the Disney Store retail chain.
Eisner also restored the company’s reputation for
blockbuster animated feature films with the creation
of The Little Mermaid in 1989, and Beauty and the
Beast and The Lion King in 1994. Despite Eisner’s
successes, his tendencies toward micromanagement
and skirting board approval for many of his initiatives and his involvement in a long-running derivatives suit led to his removal as chairman in 2004 and
his resignation in 2005.
The Walt Disney Company’s CEO in 2018,
Robert (Bob) Iger, became a Disney employee in 1996
when the company acquired ABC. Iger was president
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and CEO of ABC at the time of its acquisition by The
Walt Disney Company and remained in that position
until made president of Walt Disney International by
Alan Eisner in 1999. Bob Iger was promoted to president and chief operating officer of The Walt Disney
Company in 2000 and was named as Eisner’s replacement as CEO in 2005. Iger’s first strategic moves in
2006 included the $7.4 ­billion acquisition of Pixar
animation studios and the purchase of the rights to
Disney’s first cartoon character, Oswald the Lucky
Rabbit, from NBCUniversal. In 2007, Robert Iger
commissioned two new 340-meter ships for the Disney
Cruise Lines that would double its fleet size from
two ships to four. The new ships ordered by Iger were
40 ­percent larger than Disney’s two older vessels and
entered service in 2011 and 2012. Iger also engineered
the $4.2 ­billion acquisition of Marvel Entertainment in
2009 that would enable the Disney production motion
pictures featuring Marvel comic book characters such
as Iron Man, Incredible Hulk, Thor, Spider-Man, and
Captain America. In 2012, Walt Disney acquired
Lucasfilm in a $4 ­billion cash and stock transaction.
Lucasfilm was founded by George Lucas and was best
known for its Star Wars motion picture franchise. The
$71.3 ­billion ­acquisition of 21st Century Fox in 2019
was Iger’s most ambitious merger and would create
tremendous ­market expansion opportunities and difficult integration challenges.
Bob Chapek became The Walt Disney Company’s
seventh CEO on February 25, 2020. Chapek had been
a Disney employee for 27 years and produced strong
results in several of the company’s businesses, including
its Theme Parks, Disney Resorts, Consumer Products,
and Walt Disney Studios Home Entertainment. His
most recent position prior to being named CEO was
serving as Chairman of the Parks, Experiences and
Products since the segment’s creation in 2018 and as
Chairman of its predecessor, Parks and Resorts, since
2015. Among the most notable accomplishments of
Bob Chapek was overseeing the opening of Shanghai
Disney Resort, the creation of Start Wars: Galaxy’s
Edge lands at Disneyland and Walt Disney World, the
expansion of Disney Cruise Line with the construction
of three new ships, and the addition of Marvel-themed
attractions around the world.
A financial summary for The Walt Disney
Company for 2015 through 2019 is provided in
Exhibit 1. Exhibit 2 tracks the performance of The
Walt Disney Company’s common shares between
March 2013 and March 29, 2020.
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EXHIBIT 1 Financial Summary for The Walt Disney Company, Fiscal Years
2015–2019 (in ­millions)
Statements of income
Revenues
Net income from continuing operations
Net income from continuing operations
attributable to Disney
Per common share
Earnings attributable to Disney
Continuing Operations–Diluted
Continuing Operations–Basic
Dividends (6)
Balance sheets
Total assets
Long-term obligations
Disney shareholders’ equity
Statements of cash flows
Cash provided (used) by - continuing
operations:
Operating activities
Investing activities
Financing activities
2019(1)
2018(2)
2017(3)
2016(4)
2015(5)
$69,570
10,913
$59,434
13,066
$55,137
9,366
$55,632
9,790
$52,465
8,852
10,441
12,598
8,980
9,391
8,382
$6.27
6.30
1.76
$8.36
8.40
1.68
$5.69
5.73
1.56
$5.73
5.76
1.42
$4.90
4.95
1.81
$193,984
60,852
88,877
$98,598
24,797
48,773
$95,789
26,710
41,315
$92,033
24,189
43,265
$88,182
19,142
44,525
$5,984
(15,096)
(464)
$14,295
(5,336)
(8,843)
$12,343
(4,111)
(8,959)
$13,136
(5,758)
(7,220)
$11,385
(4,245)
(5,801)
(1) On March 20, 2019, the Company acquired TFCF for cash and Disney shares (see Note 4 to the Consolidated Financial Statements).
TFCF and Hulu’s financial results have been consolidated since the date of acquisition and had a number of adverse impacts on fiscal
2019 results, the most significant of which were amortization expense related to recognition of TFCF and Hulu intangible assets and fair
value step-up on film and television costs ($0.74 per diluted share), an impact from shares issued upon the TFCF acquisition ($0.74 per
diluted share), restructuring and impairment charges ($0.55 per diluted share) and TFCF and Hulu operating results ($0.27 per diluted
share). Additional impacts included a non-cash gain from remeasuring our initial 30% interest in Hulu to fair value ($2.22 per diluted share),
equity investment impairments ($0.25 per diluted share) and a charge for the extinguishment of a portion of the debt originally assumed in
the TFCF acquisition ($0.24 per diluted share). Cash provided by continuing operating activities reflected payments for tax obligations that
arose from the spin-off of Fox Corporation in connection with the TFCF acquisition and the sale of the RSNs acquired with TFCF and cash
used in continuing investing activities reflected a cash payment of $35.7 b
­ illion paid to acquire TFCF, offset by the $25.7 ­billion in cash and
cash equivalents assumed in the TFCF acquisition.
(2) Fiscal 2018 results include a net benefit from the Tax Act ($1.11 per diluted share) and the benefit from a reduction in the Company’s
fiscal 2018 U.S. federal statutory income tax rate ($0.75 per diluted share) (see Note 10 to the Consolidated Financial Statements). In addition, fiscal 2018 included gains on the sales of real estate and property rights ($0.28 per diluted share) and an adverse impact from equity
investment impairments ($0.11 per diluted share).
(3) Fiscal 2017 results include a non-cash net gain in connection with the acquisition of a controlling interest in BAMTech ($0.10 per diluted
share) (see Note 4 to the Consolidated Financial Statements).
(4) Fiscal 2016 results include the Company’s share of a net gain recognized by A+E in connection with an acquisition of an interest in
Vice ($0.13 per diluted share).
(5) Fiscal 2015 results include the write-off of a deferred tax asset as a result of a recapitalization at Disneyland Paris ($0.23 per
diluted share).
(6) In fiscal 2015, the Company began paying dividends on a semiannual basis. Accordingly, fiscal 2015 includes dividend payments
related to fiscal 2014 and the first half of fiscal 2015.
Source: The Walt Disney Company 2019 10-K.
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The Walt Disney Company: Its Diversification Strategy in 2020
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EXHIBIT 2 Performance of The Walt Disney Company’s Stock Price, March 2013
to March 29, 2020
(a) Trend in The Walt Disney Company’s Common Stock Price
165
150
Stock Price ($)
135
120
105
90
75
60
2014
2015
2016
2017
Year
2018
2019
2020
45
(b) Performance of The Walt Disney Company’s Stock Price Versus the S&P 500 Index
Percent Change: March 2013 = 0
+180%
The Walt Disney
Company’s
Stock Price
+160%
+140%
+120%
+100%
+80%
+60%
+40%
S&P 500
2014
2015
2016
2017
Year
+20%
2018
2019
2020
+0%
Source: Bigcharts.com
THE WALT DISNEY
COMPANY’S CORPORATE
STRATEGY AND BUSINESS
OPERATIONS IN 2020
In 2020, The Walt Disney Company was broadly
diversified into theme parks, hotels and resorts, cruise
ships, cable networks, broadcast television networks,
television production, television station operations,
live action and animated motion picture production
and distribution, music publishing, live theatrical
productions, children’s book publishing, interactive
media, and consumer products retailing. The company’s corporate strategy was centered on (1) creating high-quality content, (2) exploiting technological
innovations to make entertainment experiences
more memorable, and (3) international expansion.
The company’s 2006 acquisition of Pixar and 2009
acquisition of Marvel were executed to enhance the
resources and capabilities of its core animation business with the addition of new animation skills and
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characters. The company’s 2011 acquisition of UTV
was engineered to facilitate its international expansion efforts. The acquisition of Lucasfilm’s Star Wars
franchise in 2012 not only allowed the company to
produce new films in the series, but integrate Star
Wars into its other business units, including theme
park attractions. The company’s 2019 acquisition of
21st Century Fox was made to further expand Disney’s
portfolio of high-quality branded content with new
cable channels such as National Geographic, FX and
accelerate its direct-to-consumer (DTC) strategy by
giving the company a 60 ­percent controlling interest
in Hulu. Hulu was made the official streaming service for FX Networks in 2020.
Disney’s corporate strategy also called for sufficient capital to be allocated to its core theme parks
and resorts business to sustain its advantage in the
industry. The company expanded the range of attractions at its theme parks with ­billion-dollar plus additions such as its new Toy Story Land attractions
opened in 2018 at Shanghai Disneyland and Disney’s
Hollywood Studios and its Star Wars Land opened
in Disney’s Hollywood Studios and Anaheim’s
Disneyland in 2019. Expansions were also underway
at Tokyo Disney Resort and Hong Kong Disneyland.
The Walt Disney Company’s corporate strategy
also attempted to capture synergies existing between
its business units. Two of the company’s highest grossing films, Pirates of the Caribbean: On Stranger Tides
and Cars 2 were also featured at the company’s Florida
and California theme parks. The company had leveraged ESPN’s reputation in sports by building 230-acre
ESPN Wide World of Sports Complex in Orlando that
could host amateur and professional events and boost
occupancy in its 18 resort hotels and vacation clubs
located at the Walt Disney World resort.
In 2020, the company’s business units were
organized into four divisions: Parks, Experiences and
Products, Media Networks, Direct-to-Consumer &
International, and Studio Entertainment.
Parks, Experiences and Products
The Walt Disney Company’s parks and resorts division
included the Walt Disney World Resort in Orlando,
the Disneyland Resort in California, Disneyland
Paris, the Aulani Disney Resort and Spa in Hawaii,
the Disney Vacation Club, the Disney Cruise Line,
and Adventures by Disney. The company also owned
a 47 ­percent interest in Hong Kong Disneyland Resort
and a 43 ­percent interest in Shanghai Disney Resort.
Disney also licensed the operation of Tokyo Disney
Resort in Japan. Revenue for the division was primarily generated through park admission fees, hotel room
charges, merchandise sales, food and beverage sales,
sales and rentals of vacation club properties, and fees
charged for cruise vacations.
Revenues from hotel lodgings and food and
beverage sales were a sizeable portion of the division’s revenues. For example, at the 25,000-acre Walt
Disney World Resort alone, the company operated
18 resort hotels with approximately 22,000 rooms.
Walt Disney World Resort also included the 127-acre
Disney Springs retail, dining, and entertainment complex where visitors could dine and shop during or after
park hours. Walt Disney World Resort in Orlando also
included four championship golf courses, full-service
spas, tennis, sailing, water skiing, two water parks,
and a 230-acre sports complex that was host to over
200 amateur and professional events each year. In
2019, Disney announced plans to build a Star Warsthemed hotel at Walt Disney World Resort.
Walt Disney’s 486-acre resort in California
included two theme parks—Disneyland and Disney
California Adventure—along with three hotels and
its Downtown Disney retail, dining, and entertainment complex. Disney California Adventure was
opened in 2001 adjacent to the Disneyland property
and included four lands—Golden State, Hollywood
Pictures Backlot, Paradise Pier, and Bug’s Land. The
park was initially built to alleviate overcrowding at
Disneyland and was expanded with the addition of
World of Color in 2010 and Cars Land in 2012 to
strengthen its appeal with guests.
Aulani was a 21-acre oceanfront family resort
located in Oahu, Hawaii. Disneyland Paris included
two theme parks, seven resort hotels, two convention centers, a 27-hole golf course, and a shopping,
dining, and entertainment complex. The company’s
Hong Kong Disneyland, Shanghai Disney Resort,
and Tokyo Disney Resort them parks were highly
popular with ambitious expansion plans.
The company also offered timeshare sales and rentals in 15 resort facilities through its Disney Vacation
Club. The Disney Cruise Line operated four ships out
of North America and Europe. Disney’s cruise activities were developed to appeal to the interests of children and families. Its Port Canaveral cruises included
a visit to Disney’s Castaway Cay, a 1,000-acre private
island in the Bahamas. The popularity of Disney’s
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The Walt Disney Company: Its Diversification Strategy in 2020
cruise vacations allowed its fleet to be booked to full
capacity year-round.
The company’s consumer products division
included the company’s Disney Store retail chain and
businesses specializing in merchandise licensing and
children’s book and magazine publishing. In 2020,
the company owned and operated approximately 200
Disney Stores in North America, approximately 80
stores in Europe, approximately 50 stores in Japan,
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and two stores in China. Its publishing business
included comic books, various children’s book magazine titles available in print and eBook format, and
smartphone and tablet computer apps designed for
children. The division’s sales were primarily affected
by seasonal shopping trends and changes in consumer disposable income.
The division’s operating results for fiscal years
2018 and 2019 are presented in Exhibit 3.
EXHIBIT 3 Operating Results for Walt Disney’s Parks, Experiences and Products
Business Unit, Fiscal Years 2018–2019 (in millions)
Revenues
Theme park admissions
Parks & Experiences merchandise, food and beverage
Resorts and vacations
Merchandise licensing and retail
Parks licensing and other
Total revenues
Operating expenses
Selling, general, administrative and other
Depreciation and amortization
Equity in the loss of investees
Operating Income
2019
2018
$7,183
5,674
5,938
4,249
1,657
24,701
13,326
2,930
2,327
23
$6,095
$6,504
5,154
5,378
4,494
1,494
23,024
12,455
2,896
2,161
25
$5,487
Source: The Walt Disney Company 2019 10-K.
Media Networks
The Walt Disney Company’s media networks business unit included its domestic and international cable
networks, the ABC television network, television production, and U.S. domestic television stations. The company’s television production was limited to television
programming for ABC and its eight local ­television
stations were all ABC affiliates. Six of Disney’s
eight domestic television stations were located in the
10 largest U.S. television markets. In all, ABC had
240 affiliates in the United States.
When asked about the decline in cable television
viewership, Bob Iger suggested that content delivery method was less important than the quality and
appeal of content.
Well, for the most part, we’ve looked at channels less as
channels and more as brands. And it’s less important
to us how people get those channels. . .but what’s more
important to us is the quality of the brand and intellectual property that fits under that brand umbrella. And
our intention is to. . .migrate those brands and those
products in the more modern direction from a distribution and consumption perspective.2
Exhibit 4 provides the market ranking for
Disney’s local stations and its number of subscribers and ownership ­percentage of its cable networks
for 2013, 2017, and 2019. The exhibit also provides
a brief description of its ABC broadcasting and
television production operations. The division also
included ESPN Radio, which aired sports-oriented
radio programming on 400 terrestrial radio stations
(4 of which were owned by Disney) in the United
States. Operating results for Disney’s media networks division for fiscal 2015 through fiscal 2019 are
presented in Exhibit 5.
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EXHIBIT 4 The Walt Disney Company’s Media Network Subscribers, 2013, 2017,
and 2019 (in ­millions)
Cable Networks
ESPN
ESPN
ESPN–International
ESPN2
ESPNU
ESPNEWS
SEC Network(2)
Disney Channels Worldwide
Disney Channel–Domestic
Disney Channels–International(3)
Disney Junior–Domestic
Disney Junior–International(3)
Disney XD–Domestic
Disney XD–International(3)
Freeform
Fox
FX
FXM
FXX
Fox International
National Geographic
National Geographic–Domestic
National Geographic Wild
National Geographic - International
Star
A+E and Vice
A&E
Lifetime
HISTORY
Lifetime Movie Network
FYI
Viceland
Estimated
Subscribers
(in ­millions)(1)
2013
Estimated
Subscribers
(in ­millions)(1)
2017
Estimated
Subscribers
(in ­millions)(1)
2019
99
n.a.
99
72
73
n.a.
88
146
87
67
66
60
83
65
83
61
58
59
99
141
58
n.a.
78
91
n.a.
92
221
72
151
74
127
90
86
227
66
162
68
65
85
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
87
56
84
220
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
86
59
316
221
99
99
99
82
n.a.
n.a.
91
91
92
73
58
70
85
85
86
63
51
64
Broadcasting
ABC Television Network (240 local affiliates reaching nearly 100 p
­ ercent of U.S. television households)
Television Production
ABC Studios, Twentieth Century Fox Television (TCFTV) and Fox 21 Television Studios (Fox21) (Daytime, primetime,
late night and news television programming)
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Domestic Television Stations
Market
TV Station
Television Market Ranking(3)
New York, NY
Los Angeles, CA
Chicago, IL
Philadelphia, PA
Houston, TX
San Francisco, CA
Raleigh-Durham, NC
Fresno, CA
WABC-TV
KABC-TV
WLS-TV
WPVI-TV
KTRK-TV
KGO-TV
WTVD-TV
KFSN-TV
1
2
3
4
7
8
25
54
(1) Estimated U.S. subscriber counts according to Nielsen Media Research, except as noted below.
(2) Because Nielsen Media Research does not measure this channel, estimated subscribers are according to SNL Kagan.
(3) Based on Nielsen Media Research, U.S. Television Household Estimates, January 1, 2019.
Source: The Walt Disney Company 2019 10-K.
EXHIBIT 5 Operating Results for Walt Disney’s Media Networks Business Unit,
Fiscal Years 2015–2019 (in ­millions)
Revenues
Affiliate fees
Advertising
TV/SVOD distribution and other
Total revenues
Operating expenses
Selling, general, administrative and other
Depreciation and amortization
Equity in the income of investees
Operating Income
2019
2018
2017
2016
2015
$11,907
6,586
3,429
21,922
13,197
1,899
199
(711)
$7,338
$11,324
6,938
3,037
21,299
12,754
1,909
206
(766)
$7,196
$12,659
8,129
2,722
23,510
14,068
2,647
237
(344)
$6,902
$12,259
8,509
2,921
23,689
13,571
2,705
255
(597)
$7,755
$12,029
8,361
2,874
23,264
13,150
2,869
266
(814)
$7,793
Source: The Walt Disney Company 2017 and 2019 10-Ks.
Direct-to-Consumer & International
Among the most significant challenges to Disney’s
media networks division was the competition for viewers, which impacted advertising rates and revenues.
Not only did the company compete against other
broadcasters and cable networks for ­viewers, but it also
competed against other types of entertainment and
delivery platforms. For example, ­consumers might
prefer to watch videos, movies, or other content on
the Internet or Internet streaming services rather
than watch cable or broadcast television. The effect of
the Internet on broadcast news had been significant
and the growth of streaming services had the potential to affect the advertising ­revenue potential of all of
Disney’s media businesses.
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The combat competing streaming content providers and capitalize on such opportunities, Disney
launched two direct-to-consumer (DTC) streaming services and Over-the-Top (OTT) services that
delivered content without a distributor. Disney’s
ESPN+ DTC video streaming service was launched
in 2018 and its Disney+ DTC subscription service
that included Disney, Pixar, Marvel, Star Wars,
and National Geographic branded programming
was launched in the United States and four other
countries in 2019. Within its first year, ESPN+
had attracted more than 3.5 ­million paid subscribers. The company expected Disney+ to also have
strong appeal with media consumers and intended
to launch Disney+ in additional countries in 2020
through 2024.
Disney+ users would have immediate access to
500 movies and 7,500 episodes of television content.
Disney+ also launched with 10 original movies, and
the company planned to increase Disney+ content
to include 630 movies and 10,000 television episodes
by 2024. Disney also planned to add 60 original series, specials and movies each year to the Disney+
library by 2024. Programming was priced at $6.99
per month for Disney+ or ESPN+ or at a $12.99
bundle price that included both DTC subscription
services and ad-supported Hulu.
The company’s acquisition of a controlling interest in Hulu was an integral component of its overall
DTC strategy, both domestically and internationally.
Hulu was planned as the official streaming service
for all FX Networks programming as well as supporting ESPN+ and Disney+.
The company’s international channels produced
local programs or delivered Disney produced content
to cable providers operating in countries throughout the world. Disney branded television channels
were broadcasted in approximately 35 languages in
165 countries. Fox programming was broadcasted in
40 languages in 95 countries. National Geographic
was available in 80 countries, while ESPN programming was available in 15 countries outside the United
States. Star operated approximately 80 channels in
ten languages in India, Asia, the United Kingdom,
Europe, the Middle East, and parts of Africa. The
division also operated UTC, Bindass and Hungama
branded channels in India. Operating results for
Disney’s Direct-to-Consumer & International division for fiscal year 2018 and 2019 are presented in
Exhibit 6.
Studio Entertainment
The Walt Disney Company’s studio entertainment
division produced live-action and animated motion
pictures, direct-to-video content, musical recordings,
and Disney on Ice and Disney Live! live performances.
The division’s motion pictures were produced and
distributed under Walt Disney Pictures, 20th Century
Fox, Pixar, Marvel, Lucasfilm, Fox Searchlight
Pictures, and Blue Sky Studios banners. The division
planned to release approximately 25 feature films in
2020 had Disney produced more than 1,000 feature
films and 100 full-length animated films throughout its history. The company’s complete library of
Disney-produced and acquired films stood at 2,300
titles as of September 2019. Disney’s most financially
successful films in 2019 included The Lion King, Toy
Story 4, Frozen 2, Star Wars: The Rise of Skywalker,
and Aladdin. The company’s largest grossing films
in 2018 were the Incredibles 2 and Ant-Man and the
Wasp. All of the company’s best-grossing films in
both years were either remakes or sequels of previous
Disney, Lucasfilm, or Marvel blockbusters.
Most motion pictures typically incurred losses
during the theatrical distribution of the film because
EXHIBIT 6 Operating Results for
Walt Disney’s Direct-toConsumer & International
Business Unit, Fiscal Years
2018–2019 (in ­millions)
Revenues
Affiliate fees
Advertising
Subscription fees and other
Total revenues
Operating expenses
Selling, general, administrative
and other
Depreciation and amortization
Equity in the income of
investees
Operating Income
2019
2018
$1,372
1,311
731
3,414
2,384
$1,335
1,293
447
3,075
1,983
1,003
185
861
94
580
$(738)
421
$(284)
Source: The Walt Disney Company 2019 10-K.
CASE 21
The Walt Disney Company: Its Diversification Strategy in 2020
of production costs and the cost of extensive advertising campaigns accompanying the launch of the
film. Profits for many films did not occur until the
movie became available on DVD or Blu-Ray disks
for home entertainment, which usually began three
to six months after the film’s theatrical release.
Revenue was also generated when a movie moved
to pay-per-view (PPV)/video-on-demand (VOD)
two months after the release of the DVD and when
the motion picture became available on subscription premium cable channels such as HBO about
16 months after PPV/VOD availability. Broadcast
networks such as ABC could purchase telecast rights
to movies later as could basic cable channels such as
Lifetime or the Hallmark Channel. Premium cable
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channels such as Showtime and Starz might also purchase ­telecast rights to movies long after its theatrical release. Similarly, subscription video on demand
(SVOD) services such as Netflix might acquire distribution rights to a film for a 12- to 19-month window.
Telecast right fees decreased as the length of time
from initial release increased. Operating results for
the Walt Disney Company’s Studio Entertainment
division for fiscal 2015 through fiscal 2019 are produced in Exhibit 7.
The company’s consolidated statements of
income for fiscal 2017 through fiscal 2019 are presented in Exhibit 8. The Walt Disney Company’s
balance sheets for fiscal 2018 and fiscal 2019 are presented in Exhibit 9.
EXHIBIT 7 Operating Results for Walt Disney’s Studio Entertainment Business
Unit, Fiscal Years 2015–2019 (in ­millions)
Revenues
Theatrical distribution
Home entertainment
TV/SVOD distribution and other
Total revenues
Operating expenses
Selling, general, administrative and other
Depreciation and amortization
Operating Income
2019
2018
2017
2016
2015
4,726
1,734
4,667
11,127
5,187
3,119
135
$2,686
$4,303
1,647
4,115
10,065
4,449
2,493
119
$3,004
$2,903
1,798
3,678
8,379
3,667
2,242
115
$2,355
$3,672
2,108
3,661
9,441
3,991
2,622
125
$2,703
$2,321
1,799
3,246
7,366
3,050
2,204
139
$1,973
Source: The Walt Disney Company 2017 and 2019 10-Ks.
EXHIBIT 8 Consolidated Statements of Income for The Walt Disney Company,
Fiscal Years 2017–2019 (in ­millions, except per share data)
Revenues
Services
Products
Total revenues
Costs and expenses:
Cost of services (exclusive of depreciation and amortization)
Cost of products (exclusive of depreciation and amortization)
Selling, general, administrative and other
Depreciation and amortization
Total costs and expenses
2019
2018
2017
$60,542
9,028
69,570
$50,869
8,565
59,434
$46,843
8,294
55,137
36,450
5,568
11,541
4,160
57,719
27,528
5,198
8,860
3,011
(4,597)
25,320
4,986
8,176
2,782
41,264
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Restructuring and impairment charges
Other income, net
Interest expense, net
Equity in the income (loss) of investees, net
Income from continuing operations before income taxes
Income taxes from continuing operations
Net income from continuing operations
Income from discontinued operations (includes income tax
expense of $35, $0 and $0, respectively)
Net income
Less: Net income from continuing operations attributable to
noncontrolling and redeemable noncontrolling interests
Less: Net income from discontinued operations attributable to
noncontrolling interests
Net income attributable to Disney
Earnings per share attributable to Disney:
Diluted
Continuing operations
Discontinued operations
Basic
Continuing operations
Discontinued operations
Weighted average number of common and common equivalent
shares outstanding:
Diluted
Basic
2019
2018
2017
1,183
4,357
978
(103)
13,944
3,031
10,913
33
601
574
(102)
14,729
1,663
13,066
98
78
385
320
13,788
4,422
9,366
671
11,584
—
13,066
—
9,366
472
468
386
58
$11,054
—
$12,598
—
$8,980
$6.27
0.37
$6.64
$8.36
—
$8.36
$5.69
—
$5.69
$6.30
0.37
$6.68
$8.40
—
$8.40
$5.73
—
$5.73
1,666
1,656
1,507
1,499
1,578
1,568
Source: The Walt Disney Company 2019 10-K.
EXHIBIT 9 Consolidated Balance Sheets for The Walt Disney Company, Fiscal
Years 2018 and 2019 (in ­millions, except per share data)
ASSETS
Current assets
Cash and cash equivalents
Receivables
Inventories
Television costs and advances
Other current assets
Total current assets
Film and television costs
Investments
September 28, 2019
September 29, 2018
$5,418
15,481
1,649
4,597
979
28,124
22,810
3,224
$4,150
9,334
1,392
1,314
635
16,825
7,888
2,899
CASE 21
The Walt Disney Company: Its Diversification Strategy in 2020
Parks, resorts and other property
Attractions, buildings and equipment
Accumulated depreciation
Projects in progress
Land
Intangible assets, net
Goodwill
Other assets
Total assets
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other accrued liabilities
Current portion of borrowings
Deferred revenue and other
Total current liabilities
Borrowings
Deferred income taxes
Other long-term liabilities
Commitments and contingencies
Redeemable noncontrolling interests
Equity
Preferred stock
Common stock, $.01 par value, Authorized–4.6 ­billion shares,
Issued–1.8 billion shares at September 28, 2019
and 2.9 ­billion shares at September 29, 2018
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost, 19 ­million shares at September 28, 2019
and 1.4 ­billion shares at September 29, 2018
Total Disney Shareholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
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September 28, 2019
September 29, 2018
58,589
(32,415)
26,174
4,264
1,165
31,603
23,215
80,293
4,715
$193,984
55,238
(30,764)
24,474
3,942
1,124
29,540
6,812
31,269
3,365
$98,598
$17,762
8,857
4,722
31,341
38,129
7,902
13,760
$9,479
3,790
4,591
17,860
17,084
3,109
6,590
8,963
1,123
—
—
53,907
42,494
(6,617)
36,779
82,679
(3,097)
(907)
88,877
5,012
93,889
$193,984
(67,588)
48,773
4,059
52,832
$98,598
Source: The Walt Disney Company 2019 10-K.
UNCERTAINTY AS THE WALT
DISNEY COMPANY ENTERS
THE SECOND HALF OF 2020
The Walt Disney Company reported a revenue
increase of 29 ­percent during its first six months of
2020 compared to the same period in 2019. However,
the company’s earnings per share experienced a
73 ­percent year-over-year decline during the first
six months of 2020. The company’s strong revenue
growth was a result of the inclusion of 21st Century
Fox business units into the company’s financial
reports, but the steep 73 ­percent decline in EPS
signaled the difficulty of the effective integration
of Fox businesses into the Disney organization.
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The dramatic decline in net income from operations
from $8.2 ­billion for the six months ending March 30,
2019 to $2.6 ­billion for the six months ending
March 28, 2020, also reflected the early costs of
the novel coronavirus pandemic on the company.
The greatest impact of COVID-19 on the company’s
divisions occurred in its Parks, Experiences and Products
division, which saw a year-over-year declines in Q1
2020 revenue and operating income of 10 ­percent and
58 ­percent, respectively. Disney had closed its domestic
parks and resorts, cruise line business and Disneyland
Paris in mid-March 2020. The company’s theme parks
and resorts in Asia were closed earlier in 2020. The
company estimated that approximately $1 ­billion of the
company’s operating profit decline could be attributed
to the company’s necessary response to the pandemic. A
summary of The Walt Disney Company’s second quarter revenue and operating income by division for Fiscal
2019 and Fiscal 2020 is presented in Exhibit 10.
Walt Disney Company CEO Bob Chapek, commented on the Company’s Q2 2020 performance
and its long-term prospects as it entered the second
half of Fiscal 2020.
While the COVID-19 pandemic has had an appreciable
financial impact on a number of our businesses, we are
confident in our ability to withstand this disruption and
emerge from it in a strong position. Disney has repeatedly shown that it is exceptionally resilient, bolstered
by the quality of our storytelling and the strong affinity
consumers have for our brands.3
EXHIBIT 10 Revenues and Operating Income by Division for The Walt Disney
Company, First Six Months 2019 and First Six Months 2020
(in ­millions, except per share data)
Quarter Ended
Revenues
Media Networks
Parks, Experiences and Products(1)
Studio Entertainment(1)
Direct-to-Consumer & International
Eliminations(2)
Segment operating income (loss):
Media Networks
Parks, Experiences and Products(1)
Studio Entertainment(1)
Direct-to-Consumer & International
Eliminations
Six Months Ended
March 28, 2020
March 30, 2019
March 28, 2020
March 30, 2019
$7,257
5,543
2,539
4,123
(1,453)
$18,009
$5,683
6,171
2,157
1,145
(234)
$14,922
$14,618
12,939
6,303
8,110
(3,103)
$38,867
$11,604
12,995
3,981
2,063
(418)
$30,225
$2,375
639
466
(812)
(252)
$2,416
$2,230
1,506
506
(385)
(41)
$3,816
$4,005
2,977
1,414
(1,505)
(473)
$6,418
$3,560
3,658
815
(521)
(41)
$7,471
(1) The allocation of Parks, Experiences and Products revenues to Studio Entertainment was $117 m
­ illion and $126 ­million for the quarters
ended March 28, 2020 and March 30, 2019, respectively, and $301 m
­ illion and $280 ­million for the six months ended March 28, 2020
and March 30, 2019, respectively.
Source: The Walt Disney Company Form 10-Q, March 28, 2020.
ENDNOTES
1
As quoted by Bob Iger, Chairman and Chief
Executive Officer of The Walt Disney Company,
during Investor Conference Call, June 20,
2018.
2
As quoted by Bob Iger, Chairman and Chief
Executive Officer of The Walt Disney Company,
during the Morgan Stanley Technology, Media
and Telcom Conference, February 26, 2018.
3
As quoted by Bob Chapek, Chief Executive
Officer of The Walt Disney Company, “The Walt
Disney Company Reports Secon Quarter and Six
Months Earnings for Fiscal 2020,” May 5, 2020.