Forget Mickey Mouse: This Once-Overlooked Asset Is What Makes Disney Great

Mickey Mouse as a brand means less to the company for this once-overlooked reason.

Aug 2, 2014 at 10:05AM

There are very few companies with the illustrious history of The Walt Disney Company (NYSE:DIS). Started by Walt Disney, much of this empire was built upon the iconic animated character of Mickey Mouse -- so much so that Disney is commonly referred to as "The House of Mouse." And while many of us fondly remember that legendary jingle, "M-I-C ... K-E-Y ... M-O-U-S-E," a more apt theme song for The Walt Disney Company this century can be found blaring on ESPN almost hourly: DA DA DA ... DA DA DA.

Big growth from a small mammal
Walt Disney --  then the Disney Brothers Studio -- originated in late 1923 when its namesake signed a contract to produce a series of comedies with M.J Winkler of Felix the Cat fame. The company's breakthrough cartoon, Steamboat Willie, was Mickey's -- and Minnie's -- first appearance, gracing screens in 1928.


Don't be sad Mickey and Co., it was a really good run. Source: Wikimedia Commons

The cartoon and character ended up being a tremendous success. Yes, there were ups and downs, but the next few decades were a time of tremendous growth in the history of the company. Walt Disney famously quipped on the Emmy-Award Winning Disneyland TV show: "I only hope that we never lose sight of one thing -- that it all started with a Mouse."

Even so, it is hard building a $150 billion company on the back of a creature the size of a shoe -- even if he has a snazzy jumpsuit on.

In defense of Michael Eisner – well, sort of
Michael Eisner, the CEO from 1984 to 2005, has a dubious distinction among Disney shareholders. Blamed for the corporatization of the brand, and for producing lackluster results, he was forced out of the company rather unceremoniously by a shareholder vote that stripped him of the board chairmanship. He stepped down as CEO soon thereafter.

However, Eisner -- perhaps unwittingly -- provided the most value to the current Disney shareholders through its purchase of Capital Cities/ABC in 1995. That's because nearly a decade prior, ABC bought a little-known sports programming network you now know as ESPN.

However, Eisner can't be faulted for understating ESPN's potential -- even analysts missed it. Rarely mentioned in the acquisition write-ups for The New York Times, SFGate, and others, it appears ESPN was thought of as a minute part of the deal -- essentially a nice addition, but not a game-changer.

My, have times changed
You can't blame Eisner, the media, or analysts for failing to see the value in ESPN. America has been on an all-out craze for all things sports ever since that deal, making ESPN the king of cable networks. ESPN and ESPN2 command a shocking $5.13 and $0.68 of monthly affiliate fees -- the cable-provider revenue that's paid back to the content owner. For perspective, the average fee for basic channels is $0.26; ESPN commands nearly 20 times the average basic cable channel.

Also, the NPD group recently estimated the average cable bill at $90 a month. So, for the average person, nearly 6.5% of the cable bill is going directly to ESPN, with 80% of it making its way back to Disney. (Hearst still owns the remaining 20% of the company.)

Why the discrepancy between ESPN and other channels? Among the traditional metrics, viewership, hours viewed, etc., ESPN stands out. But it's more than that. ESPN is a strong deterrent against a powerful trend in cable -- so called "cord-cutting" -- in which many households are abandoning cable in favor of streaming and online services. Nobody has quite figured out how to combat it, outside of news and sports.


Wake up Berman, Disney shareholders need you for returns. Source: Wikimedia Commons

No longer the House of Mouse?
Disney continues to reap the benefits of ESPN -- a recent Wunderlich Securities valuation placed ESPN's value as a stand-alone entity at $50.8 billion. At the time of that valuation, Disney as an entire company was worth $137 billion. The ABC network has had a rough go and is only worth an estimated $3.2 billion.

So right now, ESPN alone is nearly 40% of the total value of Disney. Eventually, we'll have to stop calling Disney "The House of Mouse" and change that to ESPN's affable, longtime sports anchor: "The House of Berman."

Jamal Carnette 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information