The Walt Disney Company (DIS 0.18%) has long been known for its colorful storybook characters and its sprawling recreational theme parks. However, in more recent years the company has steadily shifted its business model toward that of a traditional media company with a focus on content-creation. Through the strategic acquisition of brands like ABC and ESPN, Pixar, Marvel, and Lucasfilm, the company has transformed itself into the current undisputed king of content. As the constant demand for compelling entertainment shows no signs of stopping anytime soon, Disney shareholders stand to benefit from the company's favorable positioning moving forward.
The Brands and Why They Matter
The most interesting aspect about all of Disney's main entertainment brands is that each is a leader in its respective category. ESPN and its suite of channels is the clear leader in televised sports, Pixar has been at the forefront of digital animation for over 25 years, Marvel has become the destination for all things 'superhero' with the Avengers set of movies/television shows, and Lucasfilm remains one of the strongest foundations in the science-fiction/action-adventure entertainment genre with its much-beloved Star Wars and Indiana Jones properties.
Not only is Disney's lineup top-notch in terms of quality, it is also expansive and broad-ranging in its appeal. Pixar remains a favorite among young children, while EPSN, Marvel and Lucasfilm are practically universal in their appeal. The widespread popularity of Disney's properties among viewers of all ages ensures that the company's brands will continue to become ingrained in global culture and remain relevant in the future.
Main Competition
Only one other media company has a content library that even comes close to Disney's, and that is Time Warner (TWX), whose entertainment properties include TNT, TBS, Cartoon Network, CNN, HBO, Cinemax, Warner Brothers and New Line Cinema. Similar to Disney, the management at Time Warner seems to understand the importance of focusing solely on popular content, as earlier this year the company announced its intentions to divest itself of Time Inc, the publishing unit responsible for TIME Magazine and Sports Illustrated.
Although Time Warner's library is not quite as diverse as Disney's, there are definitely similarities between the two. Both companies have large movie production units, robust superhero divisions, and even an assortment of older cartoon-based characters, including Mickey Mouse and Bugs Bunny, respectively. As such, Time Warner and its increasing focus on content-creation remains a solid alternative to Disney for investors to consider.
Growth Catalysts
The recent acquisition of Lucasfilm has the potential to be huge for Disney, as the company appears to be handling the franchise in the same manner it successfully employed with Marvel. Even though the Star Wars series has seen just six live-action studio productions in 36 years, Disney has announced plans to release a plethora of new movies over the next five years, including a direct trilogy and stand-alone origins movies.
By significantly increasing the Star Wars film catalog, the company stands to not only increase revenue at Lucasfilm but also open up new opportunities for the franchise in other areas, such as animation and video games. The company's recently-announced deal with Electronic Arts (EA 0.79%) illustrates as much. The video game publisher has attained the rights to develop all new console/mobile iterations of Star Wars games. In a move that indicates just how seriously Electronic Arts is taking this opportunity, the publisher assigned the new science-fiction games to two of its most respected developers, Bioware and DICE. Electronic Arts just recently announced Star Wars Battlefront, a next-generation game that will run on EA's Frostbite 3 engine.
Other positive notes regarding the stock should be considered as well. Since Disney's average dividend yield over the last ten years has been 1.66% there is a good chance that management will raise the yearly dividend significantly in December, since the current yield is only 1.13%. Additionally, management recently announced an impressive $8 billion share buyback program which is expected to begin in 2014. This buyback is even more impressive considering the fact that Disney has bought back $3.2 billion worth of stock in 2013 so far, $800 million of which was in the most recent quarter .
Conclusion
With Disney management's ability to successfully develop and expand acquired content properties now proven, the future of Lucasfilm looks very bright. Starting in 2015, the Star Wars universe will be made known to a whole new generation of viewers and this could have a more robust impact on Disney's revenue than even the extraordinarily successful Marvel Avengers series. However, with regard to the latter, management at Disney is not slacking, as it is only in the beginning stages of its Phase 2 film project and has plans to begin Phase 3 in 2015, and is even preparing Marvel movies all the way up to 2021.
With an expected dividend raise coming soon and the recently-announced aggressive buyback of shares, Disney remains a relatively low-risk way for investors to benefit from the increasing demand for popular media content.
