The Walt Disney Company (DIS: Charts, News) is one of the most iconic American companies and complex media entities in the world, whose $74.7 billion market cap empire consists of media networks, theme parks, resorts, movie studios, consumer products and interactive media. Recently, Disney has made a very expensive push into mainland China with its Shanghai Disneyland project, which would cost $3.5 billion USD for its initial construction phase, which would eventually set a record for the largest foreign investment in China at an estimated $15 billion USD. As Beijing’s Ministry of Finance pores over Disney’s documents, Disney has been working with local authorities in Shanghai to compensate the thousands of families moved for the construction of the theme park. Their homes were leveled and trees were uprooted to make way for Mickey and company, widely anticipated to be the largest beacon of American entertainment in a country often blamed for censoring western entertainment. How does Disney stand to gain from this costly investment?
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The theme park, which would be the second Disneyland in China after Hong Kong, would be the first in non-autonomous Chinese territory. It is Disney’s latest move to cash in on the world’s second largest economy and most populous country. Disney currently runs a retail business through 5,000 retailers, a small network of English schools, as well as media co-productions such as “China Rush”, a Chinese version of “The Amazing Race”. The park would help solidify its stable of Disney characters in the Chinese mainstream and open up more doors for extended theme parks and marketing. Whereas Hong Kong Disneyland was a clone of the original Magic Kingdom, Shanghai’s theme park, which is the result of over a decade of talks with the city government, promises to be a “uniquely Chinese” theme park. Hong Kong Disneyland, which opened in 2005, was widely regarded as poorly designed and far smaller than its western counterparts. Land-use rights, tax obligations and pricing plans of Shanghai’s Disney theme park, which will initially span over four square kilometers of hotels and shopping, will be handled through a joint venture with Shanghai Shendi Group. The park is slated to open in 2014 at the earliest, near Shanghai’s Pudong Airport.
On the domestic side of its theme park business, Disney appears to be utilizing peak load pricing in a series of price increases – first for Florida non-residents in August, and last week for Florida residents. Disney’s worldwide theme park and resort businesses account for 17.4% of the company’s net income, and serves as the public face of the company, which serves to reinforce Disney icons in the public eye. This is significantly less than three years ago, when theme park and resort businesses accounted for 30% of the company’s revenue.
Disney’s Shanghai park, coupled with its existing footholds in the country, will give it a tremendous boost for its most valuable business segment, Disney Media Networks, which earns 67.6% of the company’s income. Disney Media Networks is the huge web of television and Internet channels which include ESPN, ABC, Marvel Entertainment and many other Disney-branded subsidiaries. While Chinese media is a tricky arena, due to strict government regulation, Disney’s current cooperation with the Chinese government is a positive sign that its Chinese content will be accepted by the mainstream media, which will give the company an edge in distribution rights and channels in a country which severely limits imported theatrical releases.
These two largest business segments are well complemented by its stable of consumer products, distribution studios and interactive Internet media, which are horizontally integrated to form the heart of the media empire. Disney currently trades with a forward P/E of 14.14 and pays an annual dividend of 40 cents per share. While Disney may seem like a slow moving giant incapable of exciting growth, bear in the mind the vast possibilities of Chinese expansion, which could spark a new era of growth. Disney competes with other media titans like News Corp. (NWSA: Charts, News) and Time Warner (TWX: Charts, News).
Other News About DIS
Disney Surges on Positive Analyst Report
Has Disney’s turn for growth finally arrived?
Investment amount in Shanghai Disneyland project undecided
Analysts believe that $15 billion USD may only be a conservative estimate.
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Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.
