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Disney posts drop in profits, gloomy outlook looms

The Walt Disney Company shared results from its first quarter (actually 4th quarter 08 calendar speaking) and profits dropped 32 percent. That and some other shaky news has caused shares to slide which has me itching to do one thing. Buy some Disney stock.

Alas, I think I’ll wait a bit as I expect share prices to drop even further as analysts continue their examination of the media super powers of the 20th century. It’s not a pretty picture as tried and true revenue generating delivery methods (DVDs, selling ads against broadcast or cable tv, CDs, etc) are facing serious declines or in some cases withering away completely.

So why would I want to buy Disney stock? Because CEO Bob Iger and Board Chair Steve Jobs are as on top of the situation as you can be in their positions. In fact, I’d say Disney is uniquely positioned to ride out this sea-change in how consumers interact with media among all the Hollywood Studios. This is primarily because so much of what makes Disney valuable are the quality of the stories tied up in their trademarked characters and because they’re also masters of leveraging franchises (aka synergy).

Because Disney’s theme parks will continue to draw Guests, even if it requires price reductions to get them in the gate. When the economy recovers, Iger’s plan to keep park and resort cuts to a minumum, means that the Guest experience will only be minimally impacted, which will result in a swifter return to previous attendance levels as word of mouth (always Disney’s best marketing technique) will remain strong.

I’m a little less certain about the future of ABC, ESPN, and Walt Disney Studios. The ability to sell ads against content will continue to decline. Disney will have to find ways to generate revenue in some other way. 3-D movies come to mind, that will put butts in seats. Musicians have found ways to generate revenue by giving away their music for free or near free (everyone downloads it anyway), but they make it up by putting butts in seats in concerts. Do you see a pattern here?

I expect ESPN will figure out how to continue making live sports pay off, and figure other ways to put butts in seats (think ESPN the weekend here). ABC and Disney’s DVD division are no doubt working on their own solutions.

Do you see Disney as well positioned as I do?

Read what others are saying: The AP, MarketWatch, Businessweek, and the NY Times.

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