It's Monday night, and the smell of football runs thick at Disney's (NYSE:DIS) ESPN. The gridiron showdown promises plenty of action, but Disney's the one that will truly score. The ESPN.com website will generate 30 million hits on a Monday Night Football day. That's just the beginning. Thanks to a state-of-the-art digital facility at ESPN's headquarters in Bristol, Connecticut, it's no longer just a game.
As fans watch on TV, ESPN is subdividing the game into digital bits spread out in real-time across all of Disney's platforms. From radio to online streams at ESPN360.com, the two teams on the field may be calling fly patterns and post patterns, but Disney is the one flying to post the content that it's collecting. For ESPN, the end zone is really just the beginning.
CFO Tom Staggs painted just such a picture at the UBS 34th Annual Global Media Conference on Tuesday. Disney may be the ultimate family entertainment giant, but it's not approaching the digital age as child's play. Between movie downloads, ad-supported streams, e-commerce initiatives, and even Disney Mobile, there's a lot more to the Mouse House than you may think.
Pixar
is no toy story
Ever since Disney sealed the deal on its acquisition of Pixar, Disney has pulled up a stool, grabbed an udder, and started milking. Capital expenditures are expected to climb in fiscal 2007, with a good chunk of that going to build out Pixar-themed attractions in Disney's stateside parks.
If occupancy rates remain buoyant, Disney may expand its hotel properties, but the emphasis will remain on making its existing parks stickier destinations. And even though Disney has added a new park in Florida every 8-10 years, don't start camping out for a fifth gated attraction to open.
"I don't see another major theme park investment in the foreseeable future," Staggs said.
It may be a different story overseas. The company is already in talks with Shanghai, but there is no timetable on a second park in China, or anywhere else for that matter.
As for Pixar's expanded role, the leaders of the computer-animation pioneer have already had an influence on Disney's animation studio and attraction-creation process. Staggs admits that the plan is for Pixar to eventually average two annual releases, though it's clear that Pixar's fingerprints will be thankfully splattered all over Disney's other ventures.
Spending on the future
Disney has never been a big name in video game development. It has often handed licensing rights to third parties like THQ (NASDAQ:THQI) and Kingdom Hearts creator Square Enix. That will change, and you can thank Chicken Little for it. Disney developed that game, and found it to be as profitable for Disney as THQ's game for The Incredibles. Even though Pixar's The Incredibles was a much bigger movie, and a much bigger game, Disney is realizing that it was giving up too much in the past. It has since begun ramping up its development studio ventures.
Disney spent $100 million in video game development this past fiscal year, and it's looking to invest closer to $130 million this year. In about five years, Staggs sees Disney spending about $350 million on development if things pan out.
Disney is aiming to have its gaming strategy revolve around its branded characters -- which have become a pretty wide army. Five years ago, Winnie the Pooh and Mickey Mouse (and friends) accounted for 80% of the character-related licensing revenues. Nowadays, those two properties take up just half of the revenue mix pie.
Disney is also investing in Disney.com. The site will relaunch next month with a Web 2.0 makeover, giving the popular destination more personalization and community-driven features.
Video on screens big and small
With the convergence of video and the Internet in full swing, many of the questions for Staggs centered around the company's relationship with Apple (NASDAQ:AAPL). Pixar's Cars remains the second most popular download purchase at the iTunes video store.
Staggs also discussed the video-on-demand deal with Comcast (NASDAQ:CMCSA). Disney will be providing movies on demand for the giant cable provider just 15 days after they hit the DVD market. Disney is also serving up ad-supported broadcasts of hit ABC shows.
This doesn't mean that DVD is dead. Even though Cars didn't play as well as The Incredibles on the big screen, it should ultimately sell about as many units on home video. Staggs also feels that Cars will have an extended life as a brand in consumer products and ultimately theme-park attractions.
The new Disney Mobile cell phone service offering will also be a worthy ambassador for Disney. The company is happy with the product so far. Aimed at the 8-to-13 year-old market, Disney is surprised to find a few teenagers subscribing to the service, too. It's a sweet spot for Disney, especially since moms drive the decision-making process in 70% to 80% of the cases (hence the ads that show its parent-friendly features), and Disney is a name that families have come to trust over the years.
As easy as M-O-U-S-E
Fiscal 2007 will be challenging. Analysts expect earnings per share to climb just 7%. That's partly the result of a small tax benefit last year and more shares outstanding after the Pixar deal. Wall Street expects profits per share to march 16% higher the following year.
A lot can change along the way. Disney obviously has big hopes for Pirates of the Caribbean 3 and Pixar's Ratatouille. Staggs also singles out other projects like Wild Hogs, Underdog, and the animated Meet the Robinsons as potential sleeper hits in 2007.
Clearly, there's a lot going at Disney. Like that digital studio at ESPN -- one so vital that ESPN is opening a second facility -- these are the digital bits and pieces that will fuel Disney's future. Here's hoping that Disney knows how to slice them and splice them without ever losing sight of the importance of quality.
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Longtime Fool contributor Rick Munarriz enjoys taking his family to amusement parks of all sizes, all over the country -- including Disney World several times a year. He owns shares in Disney. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. T he Fool has a disclosure policy.
