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Saturday, October 26, 2013

Disney and the Business of Producing Nothing

I was taken aback last week when I heard a financial report on the radio going to work that Google stock prices had crossed the $1000 a share barrier. Cyber companies amaze me. Here's a company that produces very little in the way of physical products - mainly tablets which are imported. You can't drive a Google; you can't eat it; you can't put it on to keep you warm. The majority of Google lives at your fingertips. How do they make so much money and become so valuable? Well the bulk of it comes from ad revenue. Companies and people pay plenty to part of the Google universe. Their other revenue stream comes from licensing primarily from the android operating system which Google owns.

But this is a Disney site. Google is certainly not the only company which derives most of their income from the non-physical. The Walt Disney Company started by producing animated cartoon shorts then evolved into producing feature length movies. It now not only owns several movie divisions but it also owns parks, hotels, resorts, and cruise ships. Disney produces consumer products by the boat load and makes video games (still a consistently money losing part of the company). These are all tangible products. But none of them equal what is the Walt Disney Company's single largest source of income. And we are right back to the way Google does it - ad revenue.

Disney's major source of income doesn't come from our paying gobs of money to get into their theme parks or stay in their hotels. Disney gets most of its money from selling ad revenue on ESPN and the assorted Disney Channels (ABC - not so much because of the high operating cost of network TV). Not only that, but everyone in America who foots the bill for a cable or satellite package that has ESPN and/or Disney Channels, is paying Disney a monthly subscription fee whether you watch the channels or not. I know plenty of people who are not sports fans but since their channel package contains ESPN, part of their monthly payment goes right into Disney's bank account. All this comes under a division called Disney Media Networks - the place where money is made. Invisible income - sweet.

One of the biggest fears in the world of cable/satellite TV is if Congress gets serious and forces providers to not bundle TV packages and allow people in their homes (and businesses) to select the individual channels they want and not have to pay for 120 channels - 80 of which they may never watch. Certainly the technology is there to do this but the financial impact to many large companies would be huge. The politics of economics wins out on this one.

So Disney fans, even though we live in a world of Mickey and Walt, Buzz and Woody, Darth Vader and Hans Solo, Disney is raking in the real big bucks on the NFL and college football on ESPN and the hundreds of hours of programming that support it with advertisers paying plenty to be part of it. Remember that the next time you walk down Main Street.

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