This news is pretty par for Disney
I have to say that the one-billion-from-global-box touting just doesn't impress me these days, though. I've owned shares in the media conglomerate since 1998, so I've seen such headlines in the past. In fact, according to the Hollywood Reporter, this is the 10th straight year of such statistics. Here's another fact from that same article: Over approximately the past nine years, BVI brought in $12.1 billion of international box-office bucks from the film portfolios of such brands as Touchstone Pictures and Walt Disney films. This gross figure apparently is superior to the records of all others.
Now, don't get me wrong. Yes, I am happy that my company consistently does more than a billion dollars a year in international revenues. Nothing bad about that, and I would be feverishly displeased if it were half that amount. But the whole story is not contained in such a streak. Indeed, the team members at BVI need to congratulate themselves; they are obviously smart, hard workers who have to put up with the cyclical (maybe the better term would be fickle here) movie marketplace year in and year out -- that is no minute feat.
However, let me break out my 2003 Annual Report for Disney to put this in something of a perspective. On page 57, at the bottom right corner, there is a boldfaced "Studio Entertainment" slug, below which the costs and revenues for 2003 vs. 2002 are discussed. OK, here's what I see: Revenues came in at $7.4 billion, a 10% improvement. Costs and expenses, however, increased 5%. Go further on page 58 to see the discussion for 2002 vs. 2001: The comparison here sees a revenue improvement of 11% to $6.7 billion. Costs and expenses? Well, they increased 12% during this period.
Now, the studio entertainment operating income for 2002 was $273 million; dividing that by the $6.7 billion revenue figure, we see an operating margin of approximately 4% for this part of the company. Doing the same calculation for 2003, we take the $620 million studio entertainment operating income and divide that by the $7.4 billion of revenues to give an operating margin of approximately 8.4%.
Keep in mind, the studio entertainment segment of the company is comprised not only of celluloid distribution but also Disney's home video business, its stage productions, its music CD distribution schemes, etc. BVI is only one portion of the overall revenues. Nevertheless, movies themselves always reflect the overall thesis: Costs must continue to be managed effectively, and those margins better be on a significant upswing. Hopefully the next annual report will bring me good news.
So, where did I go with all this? As I mentioned, I am a Disney investor, and because my share price has seen much, much better days, I am not emboldened by such billion-dollar proclamations. There are bigger issues at stake. It's sort of like when a publicity machine gets the word out that such-and-such film scored the biggest gross for a nonsummer weekend for a Tuesday opening. Forget the hype...show me the margins.
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Fool contributor Steven Mallas owns shares of Disney.