What's in a brand? Any investor who follows the Dow Jones Industrial Average (DJINDICES:^DJI) knows how important a strong brand can be -- and how damaging it is when a company's brand becomes tarnished. The index has undergone many changes over the years, and many of these changes were enacted in response to the diminished value of one brand or the strengthening of another.
When the automobile became a common sight on city roads, the Dow responded by adding the strongest auto manufacturers to its exclusive list. The rise of a consumer culture prompted the Dow's inclusion of the most popular department stores. Companies that develop and marketed advanced technology have found a place in the Dow's ranks in every era from the Electric Age onward. Branding mattered then, and it matters even more today.
Today, we'll take a look at the brand behind Disney (NYSE:DIS), a Dow component since 1991 and Interbrand's 13th-most valuable global brand of 2012, to better understand how it was built and how it has helped create one of the world's largest companies.
Building brand value
Thanks to a decade's worth of data from the Interbrand consulting firm, we can analyze Disney's branding successes (or failures) over the past 10 years relative to some more standard corporate measures. We'll also dive into some of Disney's pivotal public moments to see how those moments helped build a brand to stand the test of time.
Over the last decade, Disney's market cap has grown 108%. Its annual revenue (with its most recent trailing-12-month revenue serving as 2012's result) has grown by 55%. The company's latest brand value, however, is 2% lower than it was a decade ago.
The past decade has seen both the end of the expansive Michael Eisner era and the acquisition of both Pixar and Marvel, which have expanded Disney's brand in new directions. While the market has taken a shine to these new properties, Interbrand doesn't seem to view them very highly. Let's dig deeper to find out why.
Behind the brand
The key takeaway from Interbrand's analysis of the Disney brand is this: "Overall, Disney looks healthy financially and shows signs of future success in the movie business, but the strength of the Disney brand itself seems to be gradually eroding. Since the company's animation renaissance in the 1990s, the flow of original content has ceased in favor of franchises and areas of business that do not originate from Disney's own creative fount."
This may be a valid argument on an emotional level. People around the world can remember viewing (either as children or with their children) some of Disney's landmark films, like Alice in Wonderland or The Lion King, the latter of which was the high-water mark of Disney's traditional animation success.
Since then, the brand standard-bearers of the Disney name have largely been its theme park operations, which are by far the global leaders in attendance. Last year, Disney attractions brought in nearly triple the total attendance of the second-largest theme park operator and saw more visitors worldwide than all of Comcast's (NASDAQ:CMCSA) Universal Studios properties, all of Six Flags (NYSE:SIX), and all of Cedar Fair (NYSE:FUN) combined. As a combined cruising-and-coasters entity, Disney's parks and resorts segment generates more revenue than Six Flags, Cedar Fair, and Royal Caribbean (NYSE:RCL) put together. The Disney brand, in these segments, is clearly worth it for vacationers.
However, what does this flat brand value say about the perceived importance of Disney's numerous sub-brands? Pixar and Marvel have each spawned a number of tremendously successful films. Of the top 100 all-time box-office leaders, 11 are either Pixar or Marvel properties, and another eight are other notable Disney productions (four are part of the Pirates of the Caribbean franchise).
ESPN is the most valuable cable channel on any given subscriber's lineup, at least in terms of the fees Disney charges for its use. The Disney Channel and its leading shows have launched a number of stars that most investors may not recognize unless they have young children -- but that doesn't mean those stars aren't tremendously valuable to Disney while they remain part of its stable.
"To thrive in the long term," Interbrand says, "Disney must rediscover its core as a global entertainment powerhouse -- and reclaim its standing as one of the world's great innovators." This begs the question: What else is left to innovate? Today's Disney bears little resemblance to the Disney of 1966, the year of Walt's death. At that time, Disneyland had then been open for just over a decade, and the company was finding its footing on television with a series of successful variety programs.
Disney's theme park empire only began to grow in the 1970s, and the Disney Channel didn't start broadcasting until the '80s. Disney today operates multiple TV channels, several film production and distribution companies, hundreds of branded Disney Stores that further leverage its iconic properties, and one of the most successful mobile- and social-game developers in the world. In what new directions could Disney innovate? That will be a question worth pondering for this venerable entertainment titan and its millions of investors.
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