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COMPANY PROFILE

The Walt Disney Company

REFERENCE CODE: 8C7AE530-4ECC-4EF5-AC18-370E646FD097 PUBLICATION DATE: 28 May 2012 www.marketline.com COPYRIGHT MARKETLINE. THIS CONTENT IS A LICENSED PRODUCT AND IS NOT TO BE PHOTOCOPIED OR DISTRIBUTED.

TABLE OF CONTENTS

Company Overview..............................................................................................3

Key Facts...............................................................................................................3

SWOT Analysis.....................................................................................................4

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The Walt Disney Company TABLE OF CONTENTS

COMPANY OVERVIEW

The Walt Disney Company (Walt Disney or 'the company'), together with its subsidiaries, is a diversified entertainment company. The company primarily operates in the US and Canada. It is headquartered in Burbank, California and employed approximately 156,000 people as of October 1, 2011.

The company recorded revenues of $40,893 million during the fiscal year ended October 1, 2011 (FY2011), an increase of 7.4% over FY2010. The operating profit of the company was $7,801 million during FY2011, an increase of 18.3% over FY2010. The net profit was $4,807 million in FY2011, an increase of 21.3% over FY2010.

KEY FACTS

The Walt Disney CompanyHead Office 500 South Buena Vista Street Burbank California 91521 USA

1 818 560 1000Phone

Fax

http://thewaltdisneycompany.comWeb Address

40,893.0Revenue / turnover (USD Mn)

OctoberFinancial Year End

156,000Employees

DISNew York Stock Exchange Ticker

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The Walt Disney Company Company Overview

SWOT ANALYSIS

Walt Disney, together with its subsidiaries, is a diversified entertainment company.. The significant customer reach of the company’s cable networks operations enhances its brand image and provides competitive edge over its peers. In addition, the strong market penetration lends greater stability to the company’s operations and provides opportunity to cross-sell its other businesses, leading to better revenue growth prospects. However, intense competition threatens to erode the company's market share in its different lines of business.

WeaknessesStrengths

Concentration of operation in the US and Canada

Cable networks operations enjoys significant customer penetration Diversified entertainment businesses Increasing profits and margins

ThreatsOpportunities

Competitive pressureIncreased focus on expanding presence in emerging economies Increasing piracy could impact revenues Poised to benefit from long term distribution agreement with Comcast

Highly regulated television broadcast industry in the US

Strengths

Cable networks operations enjoys significant reach

The company’s cable network business has significant reach. Walt Disney’s cable networks group operates the ESPN, Disney Channels Worldwide, ABC Family and SOAPnet networks. ESPN is a multimedia, multinational sports entertainment company that operates eight 24-hour domestic TV sports networks. ESPN networks reach customers in 200 countries and territories in 16 languages including a live sports network in the UK. ESPN has distribution agreements with 47 international sports networks which further enhances its appeal adding positively to its ability to reach a large audience. The company’s ESPN cable network had a subscriber base of 99 million in the US at the end of FY2011. During the same period, ESPN2, ESPNEWS, ESPNU, and ESPN Classic had 99 million, 73 million, 72 million, and 33 million subscribers, respectively. In addition, according to Walt Disney, ESPN Radio Network is the largest sports radio network in the US and is carried on more than 750 stations.

The company’s Disney Channels Worldwide cable network operates Disney Channel, Disney Junior, Disney XD, Disney Cinemagic, and Hungama TV networks. Disney Channel airs original series and

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The Walt Disney Company SWOT Analysis

movie programming targeting children and families and had a subscriber base of 240 million globally in FY2011. Disney XD airs live-action and animated programs and had presence in 130 countries worldwide. During FY2011, Disney XD had 169 million subscribers globally. In addition, Disney Junior had 58 million subscribers in the US at the end of FY2011. Moreover, Walt Disney’s ABC Family and SOAPnet TV networks had a subscriber base of 98 million and 74 million respectively.

The A&E TV Networks, part of the company’s cable network operations, includes A&E, HISTORY, the Biography Channel and History International. Internationally, A&E programming is distributed in over 150 countries through joint ventures and distribution agreements with affiliates. During FY2011, A&E, Lifetime Television, and HISTORY TV networks had 99 million subscribers each, while Lifetime Movie Network, the Biography Channel, History International, and Lifetime Real Women had 82 million, 65 million, 64 million, and 18 million subscribers, respectively.

Significant customer reach of cable networks operations provides non replicable competitive advantage for the company. The company’s content, which is produced once is distributed across a wide base of subscribers around the world. The large subscriber base therefore enables higher margins for the company. The company’s large customer reach also highlight Walt Disney’s appeal. Such appeal facilitates better bargaining power with multi-channel video service providers, the primary revenue source for Walt Disney. Additionally, the companies which have high reach enjoy higher pricing for the advertisement sales on the channel. Accordingly, the company’s large subscriber base and reach provide stability to the company’s operations.

Diversified entertainment businesses

Walt Disney has diversified entertainment businesses. The company’s media networks segment engaged in the operation of domestic broadcast TV network; TV production operations; domestic and international TV distribution; domestic TV stations; domestic and international broadcast radio networks; domestic radio stations; and publishing and digital operations. The segment encompasses the ESPN, Disney Channels Worldwide, ABC Family and SOAPnet networks. It also includes the ABC Television Network. Walt Disney’s parks and resorts segment owns and operates the Walt Disney World Resort in Florida; the Disneyland Resort in California, Aulani; a Disney Resort & Spa in Hawaii; the Disney Vacation Club; the Disney Cruise Line; and Adventures by Disney. The company manages and has ownership interests in Disneyland Paris, Hong Kong Disneyland Resort, and Shanghai Disney Resort. It also licenses the operations of the Tokyo Disney Resort in Japan.

Similarly, the company’s studio entertainment segment produces and acquires live-action and animated motion pictures, direct-to-video content, musical recordings and live stage plays. The segment distributes produced and acquired films in the theatrical, home entertainment and television markets with a focus on Disney-branded films under the Walt Disney Pictures and Pixar banners and Marvel-branded films. It also distributes films under the Touchstone Pictures banner. Walt Disney’s consumer products segment engages with licensees, manufacturers, publishers and retailers to design, develop, publish, promote and sell a wide variety of products based on existing and new characters and other company intellectual property through its merchandise licensing, publishing and retail businesses.

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The Walt Disney Company SWOT Analysis

Moreover, the company, through its interactive media segment offers branded entertainment and lifestyle content across interactive media platforms. Walt Disney offers content through multi-platforms such as tablets, mobile and online. Significant multi platform presence provides sustainable source of revenues as customers continue to prefer viewing content across all the platforms.

Through its broad portfolio of entertainment business, Walt Disney is able to target diverse customer segments. Through this, the company will be able to effectively cater to a varied customer base there by enhancing the ability to attract large customer base. Furthermore, the company’s businesses are complementary in nature. The popularity of content can be used for the company’s theme park, retail and merchandise segments to drive appeal for these products and services there by incremental revenue growth.

Walt Disney’s revenues derived from its products and services portfolio are also diversified in nature. For instance, in FY2011, media networks, Walt Disney’s largest segment, generated 45.8% of its overall revenues. This was followed by parks and resorts (28.8%), studio entertainment (15.5%), consumer products (7.5%), and interactive media (2.4%). Diversified entertainment businesses help the company to cope with a downturn in any particular business.

Increasing profits and margins

Walt Disney has witnessed a strong growth in profitability. The company’s operating profit increased from $5,547 million in FY2009 to $7,801 million in FY2011, representing a CAGR of 19% during that period. In FY2011, its operating profits increased by 18.3% over FY2010. The increase was primarily due to strong performance of the media networks and parks and resorts segments. Increase in the company’s merchandise licensing and North American retail businesses also contributed to the growth in operating income of Walt Disney. In addition, the company’s operating margins increased from 15.3% in FY2009 to 19.1% in FY2011. Similarly, the company’s net profits increased at a CAGR of 21% during FY2009–11 to reach $4,807 million in FY2011. Walt Disney’s net margins increased from 9.1% in FY2009 to 11.8% in FY2011.

The profits increased at a faster pace compared to a 6% CAGR in revenues during FY2009–11. This indicates that the company has effective control of costs and also indicates a situation where sales are growing at a faster pace compared to operating costs. For the company, growth in profits will provide a cushion to protect itself during the cyclical downturns. Increasing profits and margins reflect the efficient cost management and sound decision making.

Weaknesses

Concentration of operation in the US and Canada

Walt Disney is highly dependent on the US and Canada for its revenues. Although, the company has presence in more than 200 countries and territories across North America, South America, Europe, and Asia Pacific, it generates majority of its revenues from the US and Canadian markets.

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The Walt Disney Company SWOT Analysis

Walt Disney generated about 75.4% of its total revenues from the US in FY2011, which does not truly reflect its global footprint. It demonstrates geographic concentration, which increases its business risk by making it vulnerable to economic and political uncertainties in the particular market.

Further, the company's global competitors such as News Corporation has generated significant amount of revenues from their international operations. News Corporation, which is a US based media company, recorded approximately 45% of its total revenues (fiscal year ended June 2011) from international regions including Europe, and Australasia and other regions.

Concentrating on matured markets like the US and Canada increases the country specific risks to the company and restricts its growth opportunities compared to its competitors.

Opportunities

Increased focus on expanding presence in emerging economies

Walt Disney is focused on increasing its presence in emerging economies such as China, India, and Russia. The company entered into few significant agreements that enhanced its footprint across these regions. For instance, in April 2012, Walt Disney, the Ministry of Culture's China Animation Group and Tencent, China's largest internet service provider, formed a partnership named “The National Animation Creative Research and Development Cooperation” to advance China's animation industry. As part of the initiative, the company would provide its expertise in storytelling from concept creation and story development to market research. This partnership would enhance the company’s position in the Chinese animation industry.

In January 2012, Walt Disney announced its plan to acquire a controlling interest in UTV Software Communications, a media and entertainment company based in India. This acquisition expands the company’s footprint significantly and allows it to more effectively build, monetize and brand multi-platform franchises, and deliver a rich library of content to the Indian audience. The acquisition would position Walt Disney as one of the leading broadcasters reaching more than 100 million viewers weekly in households across India. In addition, the company would also gain a significant presence in digital media with the addition of UTV's Indiagames, a mobile gaming company, to its portfolio.

In Russia, Walt Disney partnered with UTH Russia to launch an ad-supported free-to-air Disney Channel, in October 2011. Under the terms of the agreement, the company, through one of its subsidiaries, would acquire a 49% stake in the Seven TV network from UTH Russia. The new channel is expected to reach 40 million households, which represents more than 75% of the measured audience in Russia. The partnership would allow the company to increase Disney Channel's presence in Russia.

Walt Disney will benefit from its increased focus on emerging markets. For instance, the pay TV market in Asia Pacific is growing rapidly. The market is projected to expand steadily in the next few

The Walt Disney Company SWOT Analysis

years. Asia Pacific accounted for more than 394 million of worldwide pay TV subscribers at the end of 2011, representing a more than 50% share. The share is forecasted to exceed beyond 55% by 2016. The pay TV market in Asia Pacific is forecasted to have more than 480 million subscribers and revenues of approximately $50 billion. In addition to a strong progress from the regional players in China and India, strong pay TV subscriber growth will also be experienced in emerging markets like Thailand, Vietnam and Indonesia. Moreover, China is expected to have approximately 27% share of regional revenues in 2016. In India, pay TV subscribers are expected to grow as a CAGR of approximately 9% between 2011 and 2016 to reach 139 million.

The company’s increased focus on expanding in emerging economies such as China, India, and Russia would increase Walt Disney’s geographic footprint, increase its subscribers base and market share in the coming years. In addition, the company is set to benefit from the rapidly growing pat TV market in the Asia Pacific region.

Poised to benefit from long term distribution agreement with Comcast

In January 2012, Walt Disney and Comcast announced a 10-years distribution agreement that will deliver the company's sports, news and entertainment content to Comcast's Xfinity TV customers on TV, online, on tablets and handheld devices. Both the companies also agreed to collaborate over the term of the deal to create new, innovative viewing experiences for Xfinity TV customers. The networks and services covered by the agreement include: ABC, ABC Family, Disney Channel, Disney XD, ESPN, ESPN2, ESPNU, ESPN Deportes, ESPNEWS, ESPN Classic, ESPN Goal Line, ESPN Buzzer Beater, ESPN 3D, ESPN GamePlan, ESPN FullCourt and ESPN3; retransmission consent for seven ABC-owned broadcast TV stations (WABC-TV New York, WLS-TV Chicago, WPVI-TV Philadelphia, KGO-TV San Francisco, KTRK-TV Houston, KTVD-TV Raleigh-Durham, and KFSN-TV Fresno) as well as more than 10 high-definition networks. Additionally, Comcast will launch Disney Junior, a new 24-hour basic channel for preschool-age children, parents and caregivers. In total, 70 services are covered by the broad scope of this new agreement.

The new agreement enhances the multichannel business model and supports Walt Disney’s goal to deliver video content to customers across multiple platforms using the latest technology and cloud innovation. In addition, for the first time Disney-branded cable channels will stream content to pay-TV customers using mobile devices and computers. Such offerings across multiple platforms would generate continuous revenues by reaching wide range of customers at multiple points. In addition, as the content is produced only once, continuous revenues would further increase the margins of the company. The deal is expected to generate revenues of between $20 billion and $25 billion for ESPN programming alone over the 10 years. The deal would further enhance Walt Disney’s subscriber’s base and provide incremental revenues for the company.

Threats

Competitive pressure

The Walt Disney Company SWOT Analysis

The company operates in highly competitive markets. Walt Disney’s media network business competes for viewers primarily with other TV and cable networks, independent TV stations and other media, such as digital versatile discs (DVDs), video games and the internet. Its TV and radio stations primarily compete for viewers in individual market areas. The growth in the number of networks distributed MVSPs resulted in increased competitive pressures for advertising revenues for both the company’s broadcasting and cable networks. The company’s cable networks also faces competition from other cable networks for carriage by MVSPs. In addition, the media network business competes for the acquisition of sports and other programming. The market for programming is very competitive, particularly for sports programming. Moreover, its internet web sites and digital products compete with other web sites and entertainment products in their respective categories.

Similarly, Walt Disney’s theme parks and resorts as well as Disney Cruise Line and Disney Vacation Club compete with other forms of entertainment, lodging, tourism and recreational activities. The studio entertainment businesses compete with all forms of entertainment. A significant number of companies produce and/or distribute theatrical and TV films, exploit products in the home entertainment market, provide pay TV programming services and sponsor live theater. In the consumer products segment, Walt Disney’s online sites and products compete with a wide variety of other online sites and products. Its video game business competes primarily with other publishers of video game software and other types of home entertainment. The company’s key competitors include CBS Corporation, Viacom, Liberty Media, Lions Gate Entertainment, News Corporation, Oriental Land, Carnival Corporation, Marriott International, Starwood Hotels and Resorts Worldwide, and Brunswick Corporation.

Competition in each of these areas may divert consumers from the company’s creative or other products, or to other products or other forms of entertainment, which could reduce its revenue or increase marketing costs. Such competition may also reduce, or limit growth in, prices for Walt Disney’s products and services, including advertising rates and subscription fees at its media networks, parks and resorts admissions and room rates, and prices for consumer products from which the company derives license revenues.

Increasing piracy could impact revenues

Piracy of motion pictures, television programming, and video content poses significant challenges to several of the company's businesses. Technological advances allowing the unauthorized dissemination of motion pictures, television programming and other content in unprotected digital formats, including through the internet, increases the threat of piracy. Such technological advances make it easier to create, transmit and distribute high quality unauthorized copies of such content. As a result of piracy, Hollywood faced a crisis as its most important revenue stream, DVD sales, which declined by more than 20% during 2006–2011. Similarly, according to Cable and Satellite Broadcasting Association of Asia, lack of market transparency and tolerance for illegal connections to cable systems have resulted in big losses in many Asian countries. India accounted to a loss of more than $1.4 billion due to cable piracy in 2011.

The proliferation of unauthorized copies and piracy of the company's products or the products it licenses from third parties will reduce Walt Disney’s revenues. In addition, developments in software

The Walt Disney Company SWOT Analysis

or devices that circumvent encryption technology increase the threat of unauthorized use and distribution of digital broadcast satellite programming signals.

Highly regulated television broadcast industry in the US

The television broadcast industry in the US is highly regulated by federal laws and regulations issued and administered by various federal agencies, including the US Federal Communications Commission (FCC). The FCC regulates television broadcasting, and certain aspects of the operations of cable, satellite and other electronic media that compete with broadcasting, pursuant to the Communications Act of 1934, as amended. The Communications Act permits the operation of television broadcast stations only in accordance with a license issued by the FCC upon a finding that the grant of the license would serve the public interest, convenience and necessity.

In 2010, the FCC delivered its national Broadband Plan to Congress, which reviews the nation’s broadband Internet infrastructure and recommends a number of initiatives to spur broadband deployment and use. In order to free up more spectrum for wireless broadband services, the Broadband Plan proposes to make spectrum available, including 120 megahertz of broadcast spectrum, by incentivizing current private-sector spectrum holders to return some of their spectrum to the government by 2015 through such initiatives as voluntary “incentive” spectrum auctions and “repacking” of channel assignments to increase efficient spectrum usage. If voluntary measures fail to yield the amount of spectrum the FCC deems necessary for wireless broadband deployment, the Broadband Plan proposes various mandates to reclaim spectrum, such as forced channel sharing.

In addition, the FCC continues to enforce strictly its regulations concerning political advertising, children’s television, environmental concerns, equal employment opportunity, technical operating matters and antenna tower maintenance. FCC rules require the closed captioning of almost all broadcast and cable programming. A federal law enacted in late 2010 requires affiliates of the four largest broadcast networks in the 25 largest markets to carry 50 hours of prime time or children’s programming per calendar quarter with video descriptions, including verbal description of key visual elements is inserted into natural pauses in the audio and broadcast over a separate audio channel. Cable and satellite operators with 50,000 or more subscribers must do the same on each of the top five non-broadcast networks they carry.

Violation of FCC regulations can result in substantial monetary forfeitures, periodic reporting conditions, short-term license renewals and, in egregious cases, denial of license renewal or revocation of license. This could further impact the company’s performance.

The Walt Disney Company SWOT Analysis

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