Move Over Mickey! Disney's Bread and Butter Might Not Be What You Think

Although the image of princesses or theme parks may come to the mind of investors thinking about how The Walt Disney Company makes its money, the truth of the matter is that the company brings in a lot of its sales the exact same way Comcast or CBS Corporation do!

Jul 13, 2014 at 10:44AM

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Source: Disney

Every successful business has some source of revenue that makes up a significant part of its consolidated sales. The Walt Disney Company (NYSE:DIS) is no exception. In 2013, 45% of Disney's sales came from its Media Networks segment. The mystery of what comprised this total is interesting, and it details how not only it but also rivals like Comcast (NASDAQ:CMCSA) and CBS Corporation (NYSE:CBS) will grow their operations moving forward.

Cable networks bring in big sales
In 2013, Disney's Media Networks segment reported sales of $20.4 billion, approximately 45% of Disney's $45 billion in sales for the year. For those who don't know, this segment generates revenue for Disney by receiving fees from Multi-channel Video Programming Distributors (MVPDs) in exchange for advertising time and television distribution.

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Source: Disney

The bulk of Disney's revenue from this segment stems from its Cable Networks operations. This brought in $14.5 billion in sales for the year, up 12% from the $12.9 billion management reported in 2011. The networks Disney owns include, but are not limited to, ABC Family, Disney Channels Worldwide, and SOAPnet. The company also holds an 80% stake in ESPN and controls 50% of A&E Television Networks.

This is far larger than CBS's Cable Networks segment, which in 2013 brought in sales of just $2.1 billion for the company. However, the smaller size of CBS brings with it the added benefit of high growth potential. Since 2011, the company's Cable Networks operations saw sales climb 28% from a base of $1.6 billion to where it stands today.

(Cable Networks) 2013 2012 2011 Growth
Disney $14.5 billion $13.6 billion $12.9 billion 12%
CBS $2.1 billion $1.8 billion $1.6 billion 28%
Comcast $9.2 billion $8.7 billion $8.5 billion 8%

Source: Disney, CBS and Comcast

Even Comcast, through its NBCUniversal subsidiary, cannot match Disney's cable operations. During 2013, Comcast reported sales from its Cable Networks segment totaling $9.2 billion, 36% less than Disney did. On top of seeing lower sales, the company's Cable Networks business has been growing at a slower pace than Disney's, rising just 8% from the $8.5 billion management reported in 2011.

You can't forget broadcast television
Also included in Disney's Media Networks segment is the company's Broadcast Television operations. During the year, Disney's reported sales from this business in the amount of $5.9 billion, barely higher than the $5.8 billion that management reported in both 2011 and 2012.

Despite this performance, the company's Broadcast Television operations were still larger than CBS, which reported sales in its Local Broadcasting segment of $2.7 billion. It, like Disney, has seen business barely budge over the past three years.

(Broadcast Television) 2013 2012 2011 Growth
Disney $5.9 billion $5.8 billion $5.8 billion 1%
CBS $2.7 billion $2.8 billion $2.7 billion 0%
Comcast $7.1 billion $8.2 billion $6.4 billion 11%

Source: Disney, CBS and Comcast

Only Comcast has boasted a larger Broadcast Television outfit in recent years, with sales coming in at $7.1 billion. In addition to being meaningfully larger than both Disney and CBS in this category, Comcast has also managed to grow its sales at a much more impressive rate.

Between 2011 and 2013, the company's Broadcast Television segment saw revenue climb 11% from a base of $6.4 billion. This has been more volatile than either of its peers, however, as demonstrated by the 28% jump in sales between 2011 and 2012, followed by a 13% falloff by the end of 2013.

Breaking Disney's numbers down even more
While it's nice to know how Disney's Media Networks segment operates and how it stacks up to rivals like CBS and Comcast, there's an even more interesting way to break down Disney's revenue data. By doing so, it's possible to get a different glance into how the business brings in revenue and the road that management must travel going forward if it wants to grow sales.

By far, the largest and fastest-growing part of Disney's Cable Networks and Broadcast Television revenue in 2013 was its Affiliate Fees category. By airing content with affiliated parties like ESPN and ABC Family, Disney raked in revenue of $10 billion for the year. This represents a respectable 13% jump from the $8.8 billion management reported in 2011 and is growing much more rapidly than the company's advertising sales and other sales.

(Media Networks ) 2013 2012 2011 Growth
Affiliate Fees $10 billion $9.4 billion $8.8 billion 13%
Advertising $7.9 billion $7.7 billion $7.6 billion 4%
Other $2.4 billion $2.4 billion $2.3 billion 6%
Total $20.4 billion $19.4 billion $11.8 billion 9%

Source: Disney

Last year, Disney attributed $7.9 billion in sales to its advertising activities. This is only 4% greater than the $7.6 billion the company reported two years earlier. Its other category of sales fared slightly better but aren't anywhere near the size of the company's affiliate fees. Over the past three years, Disney's other revenue grew a modest 6% from $2.3 billion to $2.4 billion.

Foolish takeaway
Based on the data provided, it's not hard to tell that Disney gets a lot of its business from content distribution across cable networks and television. While the company's Cable Networks operations are larger than both Comcast's and CBS's, its Broadcast Television operations sit between the two, with Comcast holding the winner's trophy. What's more though is that Disney's largest and most promising source of revenue is its Affiliate Fees, which have posted impressive results in recent years.

With advertising and its other miscellaneous activities picking up a comparatively smaller amount of the company's sales and both of these growing at a snail's pace, it's pretty easy to imagine the company's management team wanting to focus on building its network of affiliated parties. This is especially true of Disney's parties that fall in the Cable Networks part of the enterprise, given the stronger growth rate the business has experienced from this market compared to its Broadcast Television operations.

Media Networks is set to bring Disney its largest sales growth... ever!
Given its large cable and television distribution operations, Disney has some of the same benefits that Comcast and CBS have, but it, more so than anybody, seems poised to benefit from an industry shift that could net the entertainment giant a large slice of a $2.2 trillion pie, but Disney's not the only company ready to benefit. Click here for their names. Hint: They're not Netflix, Google, and Apple. 

 

Daniel Jones has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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