Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 Walt Disney Company Report

Note that all information and graphs below are obtained from the websites sited on the reference sheet at the end of the paper.

Creativity continues to be the essence of Disney, even as our businesses expand across borders and media platforms, it is the foundation for almost everything we do, the source of our strength and our success, and the fuel that will power us into the future - Robert Iger, President and CEO When we hear the word Disney, what is the first think that comes up in our minds? Most people think about Disney and relate it to magical, exciting and large attractions parks and hotels, and the famous Mickey Mouse. However, they missed to see how big and influential this organization really is. Walt Disney Company is one of the World largest communications organizations. Everyone knows Disney! It is everywhere in our lives, from TV, radio and movies, to parks, clothing, accessories and toys. Owning diverse media markets, Disney has build a tradition of culture and niche by efficiently managing its markets and products, allocating them among different cultures, age groups and preferences. In this report I will be analyzing some of the major managerial decisions within the Company, its influences over the market and the way it has established across the years in our culture. We are now about to discover all the financial numbers, facts, operational activities and responsibilities of the Walt Disney Company, the Happiest Celebration in World. Let the Magic of Disney to begin A Little Bit of History Walter Elias Disney founded the Walt Disney Company in 1923 as a dream to create a movie studio, which hosted short film comedies. Few years later, in 1928, the presentation of the company iconic character, Mickey Mouse, was a reality at the Colony Theater in New York. Immediately after this, Walt Disney won his first Academy Award and continued this trend for more than the following decade. His first business product consolidation started when a man offered the company $300.00 to earn the right to apply figures of Mickey Mouse to paper towels for school children. During the 1940s most of their main films were created, including Pinocchio, Snow White, Dumbo and others. In 1955, the first Disneyland park opened its doors to the public in California. Over the following decades the World Disney Company started growing until what we know today, an international powerhouse and media entertainment corporation. The company has four major business ventures: consumer products, media networks, studio entertainment and parks and resorts, which will be discussed in the next sections of this report. Today the company mission statement is to be the worlds leading producers and providers of entertainment and information. The Walt Disney Corporation has created an empire that is unmatchable in the entertainment industry in our days, an empire that is governed by a Mouse! The company continues striving for excellence and high quality

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 production to keep up with the continuously changing world.

Walt Disney Company Industry Purpose The most suitable classification for the Walt Disney main purpose is in the Media and Entertainment Industry also called the Movies and Entertainment Industry . It is hard to classify the company in a single industry because it is formed as a conglomerate with diversified business industries. The company main competitive theory statement is constructed of five parts: strategic alliances, vertical integration, creative content, corporate diversifications, and international agency. Lets exemplify this five lines: - Conglomeration: Walt Disney operates in three different fields, such as Media Networking, studio entertainment and Consumer Products. - Globalization: Walt Disney Products and Services are found all over the world in different forms and areas, including parks, resorts, movies, books, clothes, toys...etc. - Horizontal integration: Walt Disney owns many studio entertainment, consumer product companies, and media networks. These forms a horizontal integrated industry because all of them are part of the same business line and act together to increase efficiency. - Vertical integration: Walt Disney is formed by different business line subcompanies, allowing the organization to plan, produce, advertise, and distribute all of its products on its own, without looking for other companies services. - Media synergy: Walt Disney Company bought Pixar Studios that allowed to make more advanced animation movies which are distributed through Buena Vista. - Buyer and Seller Concentration: World Disney Company is in an Oligopoly Seller Concentration (along with others corporations), where there are few producers in the market and in which the product can be either homogenous or differentiated. In the other hand, there are a lot of buyers for the products this company offers, ranging from different ages groups, cultures, sexuality, interests and preferences. - Barriers to Entry: Walt Disney offers diversified barriers to entry for competitors in the market place. In the last years there have been only few new production and network companies development due to the high initial costs of operations and the existence of strong established brands, as Disney is. Disney Company also privileges from patents, trademarks and copyrights that prevent other companies from copying their productions and ideas. For new companies it is also hard to compete with this well-known and established organization due to long development period to get known by customers and protected legal barriers of the Walt Disney Organization. - Product Differentiation: Walt Disney offers a wide variety of heterogeneous

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 products; its movies, shows, themes parks, music radio, and merchandize offer a range for all tastes, cultures and ages. Making its product really differentiated \within its company and from products from other companies. Production Costs: Walt Disney World, as many others media companies, has high first copy costs and low reproduction costs of most of its media-content products. Also, managers form this company has the initiative to re-distribute their media products throughout different distribution channels (windowing); as repurposing content (using the same content in different forms, as a movie to create a video game, a book, a novel, clothes), television syndication, Merchandising and Film Distribution Windows (initiating from theatres, they to pay per view, video releases, premium cable, basic cable and finally broadcast cable) reducing the per-viewer contribution among time and down of the windows distribution; this is also called temporary Price Discrimination. Walt Disney Company Main Business Lines Media Networks: The Company media network segment manages Disneys operations in television networks broadcast TV networks and stations at national and international level, cable/satellite networks, internet services, radio media industries, mobile operations and Television content production and distribution. This division is centered around ABC TV Network (American Broadcasting Company), as well as ESPN, Walt Disney TV and SOAPnet. Others ownership interests are centered in Lifetime and A&E. In detailed the focus companies are as follows: The Disney-ABC Television Group includes the ABC Television Network (including ABC Daytime, ABC Entertainment Group and ABC News divisions); the Disney Channels Worldwide global kids' TV business, ABC Family and SOAPnet; as well as television distribution divisions Disney-ABC Domestic Television and Disney-ABC ESPN Television. It also manages the Radio Disney Network, general interest and non-fiction book imprint Hyperion, as well the Company's equity interest in A&E Television Networks. In the other hand, ESPN, Inc., which is the leader in sports network, includes ESPN on ABC, six domestic cable television networks (ESPN, launched in 1979; ESPN2; ESPN Classic; ESPNEWS; ESPN Deportes; ESPNU), ESPN HD and ESPN2 HD (highdefinition simulcast services of ESPN and ESPN2, respectively), ESPN Regional Television, ESPN International (31 international networks and syndication), ESPN Radio, ESPN.com, ESPN The Magazine, ESPN Enterprises, ESPN Zones (sports-themed restaurants licensed by ESPN), and other growing new businesses including ESPN360.com (Broadband), ESPN Mobile Properties (wireless), ESPN On Demand, ESPN Interactive and ESPN PPV. Parks and Resorts: Not only in the USA, but also in different countries around the world, the operations of parks and resorts are a great part of this company organization. This division owns and

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 operates the Walt Disney resorts, including parks, hotels, vacations units, retail products, dining, and entertainment, sports and conference complex. In the last years golf courses, recreational facilities and water parks have been added into this division. One of the main streams of revenues is the Disney Cruise Line. This business line was a significant growth revenues driver before the 2008 Financial Crisis; however the company is still striving to keep this business alive. Between the resorts locations are: Disneyland Resort, Anaheim, California Walt Disney World Resort, Lake Buena Vista, Florida Tokyo Disney Resort, Urayasu, Chiba Disneyland Resort Paris, Marne La Valle, France Hong Kong Disneyland, Penny's Bay, Lantau Island Studio Entertainment This line produces and distributes live action and animated motion pictures , musical recordings, home entertainment, pay-per-view, payTV, free-to-air TV markets, live-stage theatrical playsThis is regarded as the most visible business within the Disney company. Hit movies have been, and still, be released in main theaters, television and home video, locating the company in the movie edge production. Even though the existence flops movies (as Treasure Planet) there are Blockbusters, which have been great source of revenues for the company (as Pirates of the Caribbean.) Disneys Pixar is the main line stream in the studio entertainment department of the company. The Walt Disney Studios distributes motion pictures under Walt Disney Pictures - which includes Walt Disney Animation Studios, Pixar Animation Studios and DisneyToon Studios Touchstone Pictures, Hollywood Pictures and Miramax Films. Walt Disney Studios Motion Pictures International serves as the studio's international distribution arm. Walt Disney Studios Home Entertainment distributes Disney and other film titles to the rental and sell-through home entertainment markets worldwide. Disney Theatrical Productions,one of the largest producers of Broadway musicals, also includes Disney Live Family Entertainment and Disney on Ice. Disney Music Group distributes original music and motion picture soundtracks under Walt Disney Records, Hollywood Records, and Lyric Street Records. Consumer Products and Services Brand licenses merchandise and products offers a great variety of Disney stuff for different ages, styles and preferences. Products bearing the Disney logo range from toys, apparel, home decorations, to electronic games. The revenues from this business line come mainly from retailer stores and the profits made by selling licenses to other producers. Disney Publishing Worldwide (DPW) is the world's largest publisher of childrens books and magazines, reaching more than 100 million readers each month in 75 countries. Disney's imprints include Disney Libri, Hyperion Books for Children, Jump at the Sun, Disney Press, and Disney Editions. Disneystore.com, the company official shopping website, is also involved in consumer products sales.

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011

Disney Online/ Disney Interactive Media A new business division was created in 2006 when Disney bought Kaboose.com, babyzone.com and other 6 parent-oriented sites. This new division is now called Disney Online Mom and Family, which is focused to mothers who make the most household buying decisions in order to generate new revenues for the company. In this division it is also include television shows formatted for video iPod users. The Disney Interactive Media Group is responsible for the creation and delivery of
Disney branded interactive entertainment and informational content across multiple platforms including online, mobile and video game consoles around the globe.

Segment Media Networks Parks and Resorts Studio Entertainment Consumer Products Interactive Media

Revenue $15,857 $11,504 $7,348 $2,415 $719

Operating Income $4,942 $1,897 $1,086 $778 $258

In Summary, the Company Main Industry Divisions are: 1. Entertainment Industry The Walt Disney Studios, Disney Movies, Walt Disney Animation Studios, Pixar Animation Studios, Disney Toon Studios, Touchstone Pictures, Hollywood Pictures and Miramax Films. 2. Academics and Institutions Disney School of Animation 3. Consumer Industry Theme Merchandising, disneystore.com 4. Media and Animation Services Disney Online and Games, Disney Interactive Media Group (DIMG). 5. Media Networks Disney-ABC Television, ESPN Inc, Walt Disney Internet Group, ABC Television Stations, 6. Leisure Activities Theme Parks, Hotels, Disney World

Geographical Markets and its Revenues Proportion Companys Affiliates The Walt Disney Company main offices and Studios are located in 500 S. Buena Vista St., Burbank, California 91521-9. However, Disney have not only stayed concentrated there, within their years of story it has expanded in the national and international arena. For this I will analyze each business line division and point in which geographic area each has presence. Lets see

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 The Walt Disney company, as well as its subsidiaries, are focused on a diversified worldwide entertainment market. Each of its business lines are distributed in different markets around the world, having ownership of multiple corporations. The Walt Disney Company has a 51% ownership in Disneyland Paris, manages a 40% interest in euro Disney S.C.A, holds 18% interest in the Active Network, Inc; owns 47% interest in Hong Kong Disneyland Resort and Parks. These are the main international market forces lead by Disney. Following is a more detailed explanation. Media Networks Geographic Areas Nationally, the ABC network has affiliation agreements with 234 local stations and it reaches 99% of the USA television households. As for October 2, 2010, the revenues generated from this division were as follows: (in millions) $8.802 from affiliate fees, $7,028 from advertising and $2,052 in other, reaching a total of $17,162. In order to reach more costumers in the United States geographic market, media networks can be seen in both cable and broadcast TV. Parks and Resorts The Walt Disney Company operates parks and resorts in Florida (Disney World Resort), in California (Disneyland Resort), the Disney Vacation Club (offering ownership in 11 resort facilities), the Disney Cruise Line, and Adventures by Disney. The company has ownership sin Disneyland Paris (51%) and Hong Kong Disneyland (47%). The Tokyo Disney Resort in Japan is also part of the company. Revenues from these parks can be categorized as Domestic $ 8,404 and International $2,357, given a total of $ 10,761 (in millions). Studio Entertainment The company produces and acquires live-action and animated motion pictures, musical records, direct-to-video content and live stage plays and performances. The primary banners films of the company are Walt Disney Pictures, Touchtone pictures, Pixar, Miramax and Dimension. Walt Disney distributes and markets its films in different markets in the United States and internationally, produced directly or by joint ventures companies. In the domestic market, the company distributes films directly, having acquired for about 1,800 active produced titles. In the case of the International marketplace, more than 2,700 acquired titles have been produced. Revenues vary from Theatrical distribution $ 2,050, Home entertainment $2,666, Television distribution and other 1,985, giving a total revenue of $ 6,701 (in millions). Consumer Products Throughout the World the company engages in licensees, manufacturers, publishers and retailers services, serving our society with a whole variety of Disney products. These include a range of products categories as the ones mentioned before. Disney Publishing Worldwide publishes childrens books in multiple countries and languages supporting Disney franchises. Also in Shangai and Beijing there are 15 diverse Disney English language learning centers, giving education to native children. As for October 2,2010

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 revenues were as follows: from Licensing and publishing $ 1,725 and from Retail and other $953, giving a total of $2,678. Interactive Media Disney-branded entertainment content is delivered across interactive media platforms. Its primary business operation line is Games and Online, which produces internet websites in the USA and internationally. The company also manages the Disney branded mobile phone business in Japan. Different Internet sites integrate the whole world in diverse media markets. In overall revenues were as follow by October 2, 2010: from Game sales and subscriptions internationally $563 and Advertising and others $198, giving a total of $761 (in millions). In Summary, North America currently accounts for 78 percent of Disneys total revenue (Reuters) and Disney's international operations (in Japan, France, other parts of Europe, the former Soviet Union, South America, and China) contributed 22 percent of total revenues Disneys Primary Customers Be one of the worlds leading producers and providers of entertainment and information, is Disney primary mission. For this goal Disney had to develop products and services for different audiences, children, teens, and adults of all ages. For example, ABC for news and families, the Disney channel for children, ESPN, ESPN2, ESPNEWS and ESPNU for sports fanatics and SOAPnet for mothers and fathers. Disney themes parks and cruise lines usually attract families with younger children. For example, in the following table it can be seen how the cable network demographics of the company are distributed nationally and internationally; Estimated Domestic Subscriber (millions) ESPN ESPN ESPN 2 ESPNNEWS ESPN Classic ESPN Deportes ESPNU 100 100 74 41 5 74 Estimated International Subscribers

- Median age: 29 (66% between 18 and 34) - Men: 94% | Single: 47% - College educated: 87% - Employed Full Time: 74% - Average (Mean) HHI: $72,100 - Attended sporting events within the last 12 months: 81%

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 - Purchased products online in the last 12 months: 89%
Estimated Domestic Subscriber (millions) Disney Channel Worldwide Disney Channel Playhouse Disney Disney XD Disney Cinemagic Hungama 100 -78 --109 45 84 10 7 Estimated International Subscribers

ABC Family SOAPnet A&E Lifetime Television The History Channel Lifetime Movie Network The Biography Channel History International Lifetime Real Women

Estimated Domestic Subscriber (millions) 99 76 100 100 99 79 62 61 16 A&E Demographics

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011

Other customers also include Disney affiliated companies, which are mentioned in the second part of this report (above). Another Disney Business customer that deserve to be mentioned is the cable provider Comcast Comcast Corporation and The Walt Disney Company entered into long-term comprehensive distribution agreements for 10 ABC-owned broadcast television stations and other Disney network and services, including: Disney Channel, ABC Family, Toon Disney, ESPN, ESPN2, ESPN Classic, ESPNEWS, ESPN HD, ESPNDeportes and SOAPnet. Disneys Primary Competitors World Disney Company competition consists of about 5 diversified players that capture media networks, as well as parks, TV/films producers, and resorts. The main competitors are listed in the table below. As one can see from the table, competition is greatest at film production and network services, including competitor as CBS, Times Warner, and Viacom. However only NBC offers themes park attractions. Premium networks as HBO/Cinemax, Showtime, Encore have an advantage over basic cable Disney networks, because of subscriptions fees. Competition is really intense between major communications and entertainment players, since these Big 6 companies primarily own most of the channels and networks. In relation to its competitors, Disney had a room for additional leverage if there are attractive investments to emerge, as a new cable network company, which might launch channels in underserved countries. The presence of powerful competitors with well-known brands and services create an environment of price wars and poses a strict product differentiation requirement between those companies. Mergers and acquisitions are also continuously changing the competitors market scheme, as we will discuss in the next section. Market Share Controlled by Walt Disney Company Disney Total Revenue is approximately $36.1billion dollars (as for 2009, last data obtained for the 6 major competitors). To get the market share I used the revenues from the six major competitors in the media/entertainment industry, so this is an approximate number. Total Industry Revenue: $262.9 Billions

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 Disney Total Revenue: $36.1 Billion Disney Market Share: 13.7% of Total Revenue Industry (including only major competitors share) In the themes park industry Disney constitutes 50% share of the Industry market revenues. In the studio entertainment industry Walt Disney Studio market share is 16% in the U.S.B.O ($4.1 B) and 12% in the Worldwide B.O.market ($7.9B)

Picture from Standards and Poor Net Advantage Industry Report

Major Full Mergers/Acquisitions during the last years Disney primary mergers and acquisitions in the last 3 years are: - Tapulous On july, 2010 the company was adquired by Walt Disney Comapany. Tapulous is an American Software and video game developer; its most profitable products are Tap Tap series of music games. - Playdom On August 27, 2010, Disney Company acquired Playdom, Inc. (Playdom), which develops online social games. This acquisition is meant to strengthen the Companys digital gaming portfolio and provide access to a new customer base. For now, it is said that Playdom shareholders will receive total consideration of approximately $563 million, but it might change according to other market shares and investments. - The Disney Store Japan On March 31, 2010, the Company acquired all the shares of Retail Networks Company Limited, called the The Disney Store Japan, for $17 million. At that

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 time, the cash balance was of $13 million. Marvel On December 31, 2009, Disney completed the acquisition for the outstanding company Marvel Entertainment, Inc. (Marvel), a character-based entertainment company, for at total $4.2 billion. The main purpose of this acquisition is to meet with the Companys strategic value of creation through the use of human intellectual properties throughout the World media industry. AETN / Lifetime On September 15, 2009, the Company and the Hearst Corporation both contributed their 50% interests in Lifetime Entertainment Services LLC (Lifetime) to A&E Television Networks, LLC in exchange for an increased interest in AETN. Jetix Europe In December 2008, the Company acquired an additional 26% interest in Jetix Europe N.V., a publicly traded pan-European kids entertainment company, for approximately $354 million. UTV On May 9, 2008, the Company acquired a 24% interest in UTV Software Communications Limited (UTV), a media company headquartered and publicly traded in India, for approximately $197 million. Disney Online Studios Canada On August 1, 2007 the company became a subsidiary of Walt Disney Company; it was formerly name as the New Horizon Interactive and later the Club Penguin Entertainment. The company is a specialized graphics software company, which specialization is producing and maintaining MMOGs. New Challenges for the Company The Walt Disney Company has multiple challenging threats that could lead to a negative impact of the business in the future. The company major threats come from its national and global competitors. The high competitions have sometimes imposed problems for the company to sustain its entertainment leadership. A new challenge emerged with the acquisition of Marvel; new acquisitions could affect the development of a company at its beginning by having unprofitable sales. Disneys pressure in terms of creativity and innovation is other threat that must be surpassed to stay in this competitive market, and which Disney has done well so far. With the economic recession that is faced in this country now a days another common challenge might be employee retention. If you let go your employees they might leave and work in a competitor within the industry, giving out crucial information from the company. To summarize some down siding challenges to the company might be (From sec.org 10K report): 1. The increasing trend of vertical integration of large cable operator, today

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 Comcast-NBC merger, might present a negative threat to cable networks and operators. Increased competitive pressures may reduce the company revenues and/or increase costs. The Pirates of the Caribbean, one of Disney major hits, franchise has already been exhausted in the market. The company has still not developed another hit like this for the following years. The DVR popularity is continuing growing and the introduction of remote servers cable DVR, as Cablevision, is set to compress networks advertising revenues. Online businesses impose a risk of losing adverting revenues, making consumers able to skip commercials. Volatility of advertising revenues; depending on the event and shows with a larger/few number of viewers. Also competition have rise in the past few years, making advertising revenues more difficult to achieve. The overall competition within the cable network industry market and the continuously increasing public expectations for better programming pose a threat and a creativity challenge within companies, making programming costs to rise. Changes in U.S., global, or regional economic conditions could have a negative effect on the profitability of some of the companys businesses. Also, changes in exchange rates for foreign currencies may reduce international demand for Disneys products, making them more expensive. Changes in public and consumer tastes and preferences for entertainment and products could reduce the demand for the some entertainment productions and Disneys consumer products. The success of Walt Disney businesses is highly dependent on the existence and maintenance of intellectual property rights in the entertainment products and services the company creates; if copyrights are disturbed, revenues would be much less, and this also affect its producers of content. Labor disputes are also likely to disrupt the company operations and adversely affect the profitability of any of their businesses.

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FINANCIAL CALCULATIONS AND EVALUATION

All the information below was taken from Standards and Poor Net Advantage Reports:

Revenues and Profits: Revenues: Revenues for 2010: 38,063 (Million $) Revenues for 2009: 36,149 (Million $) Revenues for 2008: 37,843 (Million $)

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011

Revenues for 2007: 35, 510 (Million $) Revenue Growth from 2007 to 2008: 6.57% Revenue Growth from 2008 to 2009: - 4.48% (Dropped) As seen from the previous information Disney Companys revenues have been rising through the years. Revenues for 2010 changed 5.29% from the previous year. Having dropped from 2008 to 2009 by 4.48% (decrease in revenues that year). So, the total change from 2008 to 2010 is for about 0.58% increase in revenues. Incomes: Net Income for 2010: 3,963 (Million $) Net Income for 2009: 3,307 (Million $) Net Income for 2008: 4,427 (Million $) Net Income for 2007: 4 674 (Million $) Income Growth from 2007 to 2008: - 5.28% (dropped) Income Growth from 2008 to 2009: - 25.29% (Dropped) Income Growth from 2009 to 2010: 19.83% Revenue Growth from 2009 to 2010: 5.29%

As observed from the information above, net incomes in the company have changed its trend during the last 3 years. First decreasing, and then, increasing again, but not surpassing the ones from 2008 (as in revenues). The change from 2008 to 2009 was a drop in income of 1,120 (million $) or a change decrease of 25.29 %. For 2009 to 2010 the change was an increase of 656 (million $) or 19.83% increase in income. From the previous information one can see that revenues dropped from 2008 to 2009, but it recovers back during 2010; actually gaining 0.58% more than in 2008. In the other hand the trend with net profits is clearly the same. It decreased during the 2009, where revenues and income were less and it rises again during the 2010. However this time, the greatest net profits are for 2008 (as seen in the table). This is because net incomes were greatest than during 2010. A decrease of 21.79 % was observed from 2008 to 2009; and a

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 decrease of 11.02% from 2008 to 2010.

Oct 2, 2010 Selected Financial Data (USD $ in millions) Net income attributable to The Walt Disney Company (Disney) Revenues Net Profit Margin (%), Comparison to Industry Walt Disney Co. Industry, Consumer Services 10.41 3,963 38,063

Oct 3, 2009

Sep 27, 2008

3,307 36,149

4,427 37,843

9.15 4.34

11.70 2.87

The net profit margin indicates how much of every dollar of sales the company keeps in earnings. Disneys 2010 profit margin of 10.41% means that the company has a net income of $0.14 for each dollar it sells.

Based on the information presented above, the profitability of the industry can be determined. As it is seen net profits have been decreasing since 2008, it recovered a little bit from 2009 to 2010, but still not at the levels of 2008. However, revenues are now higher than during 2008. But the profits are still lower due to lower net incomes and lower earnings and cash flow through the industry. Due to these changes, we can say that even the company is making now more revenues; their other expenses make profits to be less for the company. If revenues will continue to grow at this margin, we could get to the point were profits would be as high as they were before. The profitability of an industry also accounts for operating income (depreciation and amortization) and EBIT (Less income taxes and interests.) Presented on the Standards and Poor Industry Report, Depreciation is now higher than it was in 2008 (from 1,582 to 1,713 (in millions$)) and operating income is less than it was during 2008 (from 8,986 to 8.439). From this and other information we can determine how the company has been performing and even calculate expected performances for the next years. For example, according to the Henry Fund Research, it is expected that for this year (2011) the total revenues would be of 39, 657 (millions $).
Long term Debt and Current Liabilities from the last 3 Years: Current Liabilities:

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 Liabilities for 2010: 11,000 (million $) Liabilities for 2009: 8,934 (million $) Liabilities for 2008: 11, 591 (million $) Long Term Debt: 2010: 10,130 (million $) 2009: 11, 495 (million $) 2008: 11, 351 (million $) So, liabilities for 2008 were the highest for the last 3 years in the company (this might be why their total revenues were higher). Liabilities decrease from 2008 to 2009 by a decrease of 2,657 (million $) or a decrease of 22.92%. The change from 2009 to 2010 was an increase of 2,066 (million $) or a growth of 23.13%. In the other hand, we have the long term debt increasing from 2008 to 2009 by 144 (million $) or 1.26%. And from 2009 to 2010, a decrease of 1,365 (million $) or 11.87%. So, we can see that both, current liabilities and long term debt are lower today (by 2010) than were before. Long Term Debt to Capitalization Analysis: Total Capital for 2010: 51,822 (million $) Total Capital for 2009: 48, 126 (million $) Total Capital for 2008: 47, 368 (million $) Long term debt 2010: 10,130 (million $) Long term debt 2010: 11,495 (million $) Long term debt 2010: 11,351 (million $)

Adding the Liabilities for 2010: 11,000 (million $), Liabilities for 2009: 8,934 (million $), and Liabilities for 2008: 11, 591 (million $); to the long term debt, the debt to capitalization is calculated as follow: % Debt to Capitalization 2010: 40.77 % % Debt to Capitalization 2009: 42.45% % Debt to Capitalization 2008: 48.43%

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011

Total Capital has been increasing in the last three years. However, the debt to capitalization rate has been decreasing, due to decreases in the long-term debt. However, what does all these mean? A debt-to-capital ratio mean is a measurement of a company financial leverage. Debt includes all short and long term obligations. Companies are usually able to finance their operations through either debt or equity. The debt-to-Capital ration give people an idea of how the company is financing its operations and their strengths and weaknesses. The higher the debt-to-capital ratio, the more debt the company has compared to its total equity; telling investors and customers how does the company prefer to be financed. Usually, a company that has high debt-to-capital ratios may show a weak financial strength. This is because the costs of these debts may increase the company default risk. As seen, the debt to capitalization ratio has been decreasing, and that is exactly what we want; because it indicates that the Companys debt is going down.
And, the Ratio of Total debt to capitalization would be: %Long Term Debt to Capitalization 2010: 19.6 % %Long Term Debt to Capitalization 2009: 23.9 % %Long Term Debt to Capitalization 2008: 24.0 % As seen from these results, and comparing to the previous ones, we can see the same trend if we sum up current liabilities; the debt to capitalization has been decreasing.

Cash Flow Margins, Returns on Investment, Returns on Equity, Current Ratio - Note that all margins are expressed in % and the % change in seen between each margin calculation. Cash Flow Margin Disney has produced $3,675 million Free Cash Flow (FCF) compared to $ 3, 646 million in net income (as for 1st quarter of 2010). This means that Walt Disney Company turned approximately 10% of its revenues into FCF. To Calculate the Cash Flow Margin we will use the equation: Cash Flow Margin = Cash Flow / Net Revenue.

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 Cash Flow in 2010: 5,676 (million $) Cash Flow in 2009: 4, 938 (million $) Cash Flow in 2008: 6, 009 (million $) So, with the revenues listed before, we can calculate the cash flow margin between these years: Cash Flow Margin 2010: 14.91 % Cash Flow Margin 2009: 13.66 % Cash Flow Margin 2008: 15.88 % The Cash flow margin indicates how the company needs to generate cash to pay its expenses and purchase assets, and it is crucial for the company to have good cash flows. If a company increases its cash flow it means that it is more able to convert sales into cash, which is a good indicator of its performance. So, in the case of Walt Disney Company the cash flow margin was reduced from 2008 to 2009 and then it rise again for 2010. However, it still does not get to the levels of 2008. Which, might show that the company still needs to overturn to generate more cash. The cash flow per share shows exactly the same pattern. It was at $3.09 during 2008, decreased to $2.63 in 2009, and increased to $2.91 in 2010. Returns on Investment Returns on equity

Oct 2, 2010 Selected Financial Data (USD $ in millions) Net income attributable to The Walt Disney 3,963 Company (Disney) Total Disney Shareholders equity 37,519 ROE (%) Walt Disney Co. 10.56

Oct3, Sep 27,2008 2009 3,307 33,734 9.80 4,427 32,323 13.70

The Returns on equity (ROE) is a profitability ratio calculated as net income divided by shareholders equity. In the case of Walt Disney company, as seen from the picture above

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 the returns on equity deteriorated from 2008 to 2009, but then they slightly improved from 2009 to 2010. We would like ROE to be higher through the years, because it is an indicator of improvements in the economy.

Returns on Assets Oct 2, 2010 Oct 3, Sep 27, 2009 2008 3,307 4,427

Selected Financial Data (USD $ in millions)

Net income attributable to The Walt Disney Company 3,963 (Disney)

Total assets 69,206 63,117 62,497 ROA (%), Walt Disney Co. 5.73 5.24 7.08 Returns on Assets refer to the profitability ratio calculated as net income divided by total assets. Walt Disney Company returns in assets also deteriorated from 2008 to 2009, and again slightly improved from 2009 to 2010. We also want ROA to be higher trough the years, because it means the company is getting more income per investment. ROE numbers would be higher than ROA, because the denominator side of the equation (Shareholders equity) would be lower than the one of ROA (which includes all assets). The more liabilities the company has, the bigger the ROE would be compared to the ROA. Current Ratio Liquidity or Risk Assessment From the information above, taking the information for current liabilities and now using the current assets. We can calculate the current ratio of the Company.

Selected Financial Data (USD $ in millions) Current Assets Current Liabilities Current Ratio

Oct 2, 2010 12,225 11,000 1.1

Oct 2009 11,889 8,934 1.3

3, Sep 27, 2008 11,666 11,591 1.0

This ratio is used to give an idea of the companys ability to pay back its short term

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 liabilities with its short term assets. The higher the ratio, the more capable the company is of paying its obligations. So, from the chart you see that Disney was more capable during the 2009, having increase from 2008 and again decrease in 2010. Higher current ratios are better, because you would like to have more money available (assets) than the money you need (liabilities). Normally, companies want current ratio to be at 1.5 or higher, which is not happening with Disney Company. However, as liabilities go down these numbers could change. Operating Profit Margin Oct 2, 2010 Selected Financial (USD $ in millions) Operating income Revenues Operating Profit Margin (%) Walt Disney Co. Data 6,456 38,063 16.96 5,205 36,149 14.40 7,404 37,843 19.57 Oct 3, 2009 Sep 27, 2008

From the previous table you can see the profits margin calculations, which is a profitability ratio calculated as operating income divided by revenue. Walt Disney Company s Profit Margin also deteriorated from 2008 to 2009 and slightly improved from 2009 to 2010. In Summary from all the information above the next table, which includes return on sales and returns on Investment is presented:

Oct 2, 2010 Return on Sales (%) Operating profit margin Net profit margin Return on Investment (%) Return on equity (ROE) Return on assets (ROA) 16.96 10.41 10.56 5.73

Oct 3, 2009 14.40 9.15 9.80 5.24

Sep 27, 2008 19.57 11.70 13.70 7.08

Solvency or Capital Structure Leverage Ratio:

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 It is calculated by the formula: total debt/ total assets (million $) Total Debt Total Assets Leverage Ratio Oct 2, 2010 21,130 69,206 30.53 % Oct 3, 2009 20,429 63,117 32.37% Sep 27, 2008 22,942 62,497 36.71%

As seen from the graph above the leverage ratio has been lowering in the last three years, which is a good indicator for the company. It is a positive sign, because it means that the company debt is going down in overall. This ratio, implies that relative to the industry the Walt Disney Company takes a less aggressive method to finance its growth with its debt, reducing its risk as a company. Debt to Equity Ratio: (million $) Total Debt Total Equity Debt to Equity Ratio Oct 2, 2010 21,130 37,519 56.32 % Oct 3, 2009 20,429 33,734 60.56% Sep 27, 2008 22,942 32,323 70.98%

As seen from the graph above the debt to equity ratio has been lowering in the last three years, which is a good indicator for the company business and capital structure. It is a positive sign for the company in overall.

Conclusion and Analysis

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 After collecting all my data and making a careful and depth analysis from an outside perspective to the company, I can say that The Walt Disney Company is a global leader in the industry of entertainment; it is a company that is continuously growing. The company always demonstrates its highly centralized and organized managerial decisions. The studio production department is crucial for the company to act as a leader for its products and other advertisings services; at the end all its businesses are codependent into this starting point; the companys developments that come from its studio production department, were all characters are born and ideas are developed. The Walt Disney Company has a rich selection to produce its own products and attractions, making the company a highly competitive industry to expand into new markets and products lines. Their domestic and international market share demonstrates its great expansion and its location between the top players in its industry. Between the Positive remarks on investment are: The Walt Disney Company is a diversified media company surpassing its competitors in most of its operations. It captures most of the entertainment spectrum around its industry. The Cable and Media Network Business line accounts for about 27% of the company total revenues and 48.5% of the total operating income from cable networks. If long-term contracts are possible, it would make the companys cash flow much more stable that from other of the companys business segments. Thanks to the recent launch and growth of the companys game development, new growth avenues are expected. Reviewing the overall balance sheet, I can say that it is generally strong, having a solid cash balance. Successful new franchises may be developed with the acquisition of Marvel; which bring along new characters and ideas. Even though, fluctuations in net revenues and incomes, these are very small. So that not great changes were present during the last three years. Revenues have increased, but net incomes have decreased in the past few years. But as I said, it is nothing really huge to worry about. These fluctuations might be due to the increases in assets and liabilities in the 2010. The new mergers and acquisitions that were present trough those years influence the increases and decreases in liabilities and assets. To merge or acquire a new company, expenses are involved and loans might be taken to pay for them. Disney Company is also characterized for having a strong management team, which have had the ability to develop entertainment franchises for the domestic and international distribution. The company is being undertaken different approaches into growth initiatives; as its increasing presence on the Internet, and its international expansion of cable

Sara Odette Battikh Walt Disney Company Report COMM 387 Spring 2011 networks and theme parks. The Company also features ESPN network, which have the dominant position in sports. And will continue to be for the prospect years; it is a key revenue driver in the Disney cable segment and for the Company in general.

Besides these positive remarks on investment, there are also the negative arguments for the company; generally expressed as the company main challenges, which were discussed previously in this report and that are basically focus on competition and vertical integration from other companies and providers. Overall, the Walt Disney Company seems to be doing well in the past years; and even economic recessions, the company market share is still high: there are some fluctuations in its total revenue and income, but the company is still in a good spot and market dominance. In the next few years, according to my research, I see the company entering to even new markets nationally and internationally and exploring new business segments. I see the company revenues growing for this year too, and this can even influence the growth in total income (which has been low mainly due to the acquisition of new firms in the previous years.). Also, we need to realize that the United States is almost recover from the last economic recession, pushing up our economy and thus influencing Walt Disney revenues to go up. Walt Disney Company goal has been and will always be To make people happy and to be creative Since 1923 to the present the company has been producing films and contents for different age people. The companys ability to invoke a feeling of eternal youth is clearly present in all of its content; so generally I can say the company has been doing an excellent job fulfilling both of their goals!

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