LA Times has whopper of a headline

Just getting around to scouting the Disney news a little late tonight (finished two final papers for the summer semester tonight, so nice to have a couple of weeks of relief).

Anyhow, I hit Google and came up with this whopper of a headline from an LA Times blog right off the bat:

If only Exxon could earn money like Disney

In the brief blog post from Tom Petruno he compares Exxon's recent record breaking quarter to yesterday's quarterly announcement for Disney. 

Apparently according to Tom we shouldn't feel too bad for Exxon, their profit margin was only 8.5% compared to Disney's 13.9%.  It's an interesting, if slightly strange read.

In other news, Disney's stock fell about 4% today.  According to Forbes it was because of announcements of a weakening ad market for those lucrative cable channels and 'lackluster box office results' in yesterday's earnings call.  

I still maintain that is a bunch of baloney about the studio.  Nobody in their right mind expects Narnia to be a Pirates.  Narnia is a great series of stories, but they have no major star power (thought the kids ARE cute) and frankly a much narrower demographic than a Pirates movie.  They will make money for the company in the long hall, especially when they get to DVD.  But they will NEVER be a Pirates, plain and simple.

My guess is there was a good bit of profit taking in there by people/traders who bought the earnings bounce from a week or so ago when the stock dipped below $30. 

If you could make a couple bucks on a nice chunk of shares in a couple of weeks wouldn't you?

3rd Quarter Pretty Good . . .

Well, the numbers are out for the 3rd quarter.  You can view them here and listen to the re-broadcast here. 

Basically if you run down the first page of the report here is a basic summary:

• Media networks is on par for the quarter with the rest of the year in growth at about 8%.  Major offset is slow weakening in advertising, mostly from companies that themselves are in financial trouble (automotive and finance were the ones given).  Likewise they made a little advance from the strike last year, but it didn't sound like a lot.
• Studios is of course down from last year with the blowout last year of Pirates III.  However, it's not down anywhere CLOSE to what the difference in revenue between Pirates and Narnia is.  I think even if Narnia had been a blow-out for what it COULD make, the studio number would still be down from last year.  WALL-E got most of the Studio glamour.
• Consumer Products revenue was up but income was down.  Basically a mixed bag with a lot of quarter movement based on the re-acquisition of the Disney Stores.
• Lastly comes Parks & Resorts.  As we suspected, revenue is up here as well, though is has slowed a little.  The biggest news really is bookings for the 4th quarter and into the late calendar year appear to be at or above benchmark... 

One other thing of note especially in relation to P&R is that CAPEX (or capital expenditures) is basically inline with last year, so no major movements there away from the historic norm either.

Lastly, cash flow was up (but if you take into account all the caveats, it's probably close to flat), and they continue to buy back shares.

For those of you who found the article I wrote about Euro Disney the other day interesting, you'll also find it interesting that at this point Disney owes MORE on Euro Disney after a decade than they spent on building Hong Kong. 

As a consumer the biggest take away is:

Bob and Tom don't expect the product pricing/discounting/product mix for the parks to change remarkably from what it has been, and occupancy remains above 90% in both California and Florida. 

So for all you people hoping for a big drop in Disney trip prices, looks like your out of luck through at LEAST January at the moment.

Market Sees Disney Ahead for Now

Sorry I have been a little lax in posting this week.  It is the last week of summer session at college, and while I don't have any finals per say, I do have several papers due that have been eating into my Disney pontification and dreaming time.

Reuters news service out of the UK has posted an article today that more or less parrots what you and I talked about last week: namely that the market has already moved beyond the press event for earnings tomorrow barring any shocking revelations by Bob Iger or Tom Staggs. 

As Disney reports its quarterly results this week, investors and analysts already are focused on the year's back half for signs that the company's astonishing profitability during the year-long economic downturn is faltering.

Expect the numbers at Parks and Resorts to be lower than last year for the same quarter for much the same reasons as Euro Disney's was (last year's quarter was longer and had the Easter holiday in it, where this year did not), but still up slightly.

The Studios is the wild card of course.  People keep harping that Prince Caspian didn't make as much money as Pirates (this article does it too).  But I think that's just wrong headed. 

Certainly PC didn't do as well as Disney might have hoped, but I would submit that it was NEVER expected to do as well as any of the PoC movies.  That's just silly.  According to Box Office Mojo, Narnia had a $200 million budget, and made $302 worldwide. 

If you believe what Jim Hill says that movies have to return twice what they cost before they are really in the money, then Narnia is a loss.  However, I don't think that will entirely be the case since it more than recovered it's production costs anyhow, and we haven't yet factored in DVD sales, etc. 

So the only question will be how head on Bob and Tom (hey, don't they have a morning radio show?) take on the future issues of bookings, etc. or if they mention it at all.

Time will tell.

Disney and Iwerks patent for Circle-Vision 360 and other interesting findings

Okay, so I said I wouldn't repeat stuff that other people posted, but this is just too cool to pass up (and the geek in me loves it!). But I will put my own twist on it at the end, promise.

Hans Perk has posted a cool set of pictures of the original patent for what we today know as Circle Vision 360 (then Circarama).

The listed co-inventors are Ub Iwerks and Walt Disney.

I remember seeing my first Circle Vision movie when I was about 7 when my family and paternal grandparents traveled from Missouri to Southern California to visit Disneyland (that would have been the summer of 1979) and other destinations along the way (we went to Las Vegas, Universal, the Grand Canyon and others. A regular old road trip!).

Everybody in the family thought the movie experience was awesome until they put us on the back of a hook and ladder truck (that's the fire truck that has a guy steering in the back as well) going down Lombard Street I think it was in San Francisco. My grandmother got nauseous and had to sit down on the floor! The rest of us survived to tell the tale however.

Hans has another link to some very cool pictures of the old Circarama camera setup.

Unfortunately the current search engine at the US Patent and Trademark Office only goes back to 1975.

Regardless, for fun I tried searching on Disney as an author and came up with 75 patents for different types of transistors, MOSFET devices, etc. in which a 'Donald Disney' is the author or contributor. All stuff an electrical engineer (like me) would understand, but nothing related to the Disney company, and no easy link I can find to the Walt/Roy Disney family or company.

So then I searched on Iwerks and came up with 2 patents. Both include a 'Donald W. Iwerks' as an inventor (one he shares with others in 1979 when he worked for the Walt Disney Company, and the other which he shares with Walt Disney Imagineering legend Bob Gurr!).

Some of you may know more about Don Iwerks than me, but I admit despite the fact that Don is an Oscar winner and former Imagineer, I had no idea who he was!

I know of Leslie Iwerks, Ub's granddaughter, from her movies, but didn't know Donald. So after a little more searching I found this and this. Cool! So Don is Leslie's father and Don also has a brother named Dave who works in the industry as well (he worked at LEAST on Tron according to IMDB).

Anyhow, the short family tree lesson later I found something I didn't know, but that again many of you might have: that Don left Disney in 1986 and he started his own company Iwerks Entertainment.

According to the link, Don started Iwerks Entertainment around the idea that the:

. . . high-technology, cinematic attractions at Disneyland and Disney World were proven winners, convincing Don Iwerks that the attractions could stand on their own and attract lines of customers outside the borders of sprawling theme parks. Further, Iwerks reasoned, the high-technology attractions could draw even larger audiences if presented at more conveniently accessible locations than Disneyland and Disney World. . . Don Iwerks was convinced he could develop the world's premier location-based entertainment (LBE) company.'

(sound a little familiar to some of Jay Rasulo's current thoughts on the expansion of the Disney Parks & Resorts brand?)

Iwerks Entertainment had a respectable track record of success throughout the late 80's and 90's, had a successful IPO and traded on the NASDAQ, and even bought out their second highest competitor. At one point, according to this Los Angeles Times article, the stock traded at over $120 on a split adjusted basis.

Unfortunately, the company fell on hard economic and business times in the early part of this decade and in 2001 was acquired for only a little over $2 million according to the same LA Times article.

Today, Iwerks Entertainment and it's technology still live on as part of Toronto based SimEx - Iwerks, a leading company is 3-D and 4-D experiences and motion rides.

Maybe one of them is close to you?

Randy Pausch

The Associated Press is reporting that former Imagineering collaborator and VR Professor Randy Pausch has passed away at the age of 47.  Most of you of course know him for his now infamous 'Last Lecture' before leaving Carnegie Mellon after being diagnosed with incurable pancreatic cancer.

From some of the previous movies and documentary stuff I've seen, I believe Randy teamed with Disney on several VR inspired rides, many of which are today at the last remaining DisneyQuest at Downtown Disney in Florida.

Our thoughts and prayers go out to Randy's wife, his 3 young children, and the rest of his family and friends.

May we each be given a chance to mark the world in as meaningful and inspired a fashion.

Euro Disney

Forbes today posted an AP article saying that the operating company that runs Euro Disney says its sales growth slowed sharply in the 3rd quarter.  Everything was still up however, which is good.

I've often wondered about Euro Disney and how the company is setup.  As most of you know, Disney doesn't really own any of the parks outside of the US.  Tokyo Disney is run purely as a license to The Oriental Land Company, Hong Kong Disney is a co-owned entity between Disney and the Hong Kong government.

And that leaves Euro Disney, which is owned and operated by the largest conglomeration of companies I think I've ever seen.  If you want to see, click here.  When you get to that page, click on the greenish tab marked 'Group Overview'. 

And there my friends, you have it.  Pretty no?

Disney controls Euro Disney through 4 limited liability companies (Société par actions simplifiée or S.A.S.) and one holding company (incorporation type not given).  That holding company in turn owns 100% of another S.A.S. company, which is the sole general partner in Euro Disney S.C.A.

Euro Disney S.C.A (Société en commandite par actions or S.C.A) is a holding company for all of Euro Disney.  An S.C.A. in France is a form of Limited Partnership. 

The Disney controlled holding company holds 39.8% of the outstanding shares and the public holds 60.2% respectively (10% of which it's noted are owned by Prince Alwaleed).  All of these share holders in effect appear to be limited partners. 

Euro Disney S.C.A. in turn, through yet another limited liability holding company, owns 82% of Euro Disney Associés S.C.A, which is the actual operating company for most of Euro Disney and the property manager.  The other 18% is owned by two of the original 4 limited liability companies I mentioned above, which also makes them general partners in the operating company.

Then there is EDL Hôtels S.C.A., which is 99.9% owned in turn by the operating company above (Euro Disney S.C.A), and operates most of the hotels and the Disney Village (the Downtown Disney of Euro Disney). 

One of the other 4 companies owned by TWDC is there nothing more than to be the gérant for the 3 main Euro Disney companies (which is presumably why TWDC shows Euro Disney debt encumbrance on it's balance sheets?). The gérant is responsible for managing the company in the companies best interest. 

Got all that? 

Well here is where it gets fun... 

Because none of these companies actually own ANY of Euro Disney apparently.

They own the operating companies.  All of the land, the parks, the shops and the hotels are owned by two finance companies which then lease them back to the 2 management companies for operations.  

The first finance company is actually a société en nom collectif (or a general partnership) between the last Disney holding company and the investors.  Disney owns 17% and the investors 83%.  This holding company is the actual owner of the Disneyland Park, and leases it to the operating company.  So these guys own the land and make money on the lease, plus whatever returns they get from any stock they might own. 

The second finance company has no direct Disney involvement and owns most of the remaining hotels and the Disney Village and in turn leases THEM to the EDL Hôtels S.C.A. we mentioned earlier.

Someone call my lawyer... 

No, on second thought, call my doctor. 

I have a migraine coming on.

Fitch and Cramer UP on Disney

Two interesting financial events today on the Disney front.

First, Jim Cramer, the popular host of the CNBC show 'Mad Money' apparently last night gave a 'thumbs up' to Disney stock at the $30 price point. If you believe there is such thing as the 'Cramer effect' or the 'Mad Money effect' (same thing basically), then the market for Disney moved up almost 2.5% based on that fact alone.

If, like me, you think Disney is a well run company with lots of things going for it, then you realized that the drop in the last several weeks was probably just profit taking from people who had rode the stock up from the mid-to-low 20's. They probably sold since the stock was seeing pressure from moving upward and could have possibly moved downward very quickly on any bad news.

65% of Disney shares are owned by institutional investors according to Google, so it seems unlikely that 35% of the market suddenly moved the stock 2.5% because of Jim Cramer (though I enjoy his show sometimes as much as the next guy. Booyah to you!).

Like wise, a couple of weeks ago we discussed Disney's debt getting cheaper due to a positive upgrade from Fitch Ratings (you didn't sleep through that post right? ;)

Today Fitch posted their report that profiles why and how they upgraded Disney. The nice thing is it dovetails well with the plans that Bob Iger and Tom Staggs have been working on, which is to show Wall Street that Disney is more than just a 'typical' entertainment company.

Fitch notes that Disney EBITDA (that's Earnings Before Interest, Taxes, Depreciation and Amortization) is up 29% in the last twelve months, mostly due to increases in earnings from what Disney charges for their cable channels like ESPN and The Disney Channel.

Likewise they lay out a case based on previous history that the Parks & Resorts segment could absorb as much as a 10-15% decline in attendance and yet still remain profitable.

The report is available using a free registration from Fitch Ratings, and it really is a must read if you are interested in a deeper financial look at the company.

Oh, and for those of you worried about how much Disney paid for PIXAR, you'll be happy to know that Disney bought back all the shares they issued to make that deal happen from free cash flow at the end of LAST fiscal year. And then bought back another $9 billion for good measure. So don't bet on Cramer too much just yet.

The future at Disney is lame? I think not!

Well, back in the saddle after a long, no make that short, night on AMTRAK.  Everything went pretty well, but you gotta love getting in at 5 in the morning!

Anyhow, it's been a busy week and yet a quiet week on the Disney front.  Nothing much in the financial press this week that I can find, everybody must be waiting for next week's financial call for the 3rd quarter.  It will be interesting to see what the market does to Disney shares in anticipation of the announcement.  

Of course I, like most of you, don't really expect anything earth shaking.  My bet is that Disney will affirm their current guidance, talk a little about all the great things they have going on and that are in the works and post respectable numbers for the 3rd quarter. 

They will NOT, I repeat NOT, get pulled into predicting the future, talking about trending indicators for bookings, how oil will affect the future, or any such stuff based on internal management accounting.  They never do (nor do most companies) and this time won't be any different. 

Not that Mr. Iger and Mr. Staggs won't be asked. . . the analyst crowd will be on it like white on rice. 

The only real surprise will be if for some reason they suddenly trend downward for their end of year financial targets. . . but I wouldn't bet on it, since the summer will probably still post strong numbers for pre-booked vacations.

Some of you probably also saw over at The Washington Post an article that pretty closely paralleled our in-depth look at the new Home of the Future our in California.  The article is an overall downbeat piece on the technology shortcomings of the 'future' showcased in the Parks. 

I don't agree with most of what the author has to say, but we do seem to agree that the Home of the Future could have been a little further into the future.  At the end he twists Arthur C. Clark's 3rd law (which I have as the preamble to my resume) to basically saw that Disney can't seem to invent the future anymore. 

Most of the problem is that technology improvements today are on a scale much different than they were in the 1960's.  Today we are making technology advances in the nanometer and smaller space or even in software, not so much in the more macro-space that lends itself to massive theme park 'areas'. 

So I don't really find it that off putting that Disney struggles with this.  Most Fortune 500 companies struggle with it too, especially those who work in the micro space.

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UPDATE: Fixed a few niggling typo's and grammatical things.

DIMG Memo and Org Structure

So by now most of you have probably seen the leaked memo put out by Steve Wadsworth the head of the newly created DIMG group.  If you haven't you can find it here.

So I whipped up a quick and dirty picture of what I think I can decipher from the new executive org chart and you can see it below.  I try to do this whenever I can, since TWDC is pretty protective of this type of information usually.  Just try to find an org chart on Google for any Disney LOB.  Hard! 

Besides, if I want to work there someday, it's good to know where the cards are.

The parts on the bottom left aren't really exact, as most of those folks are in a different business area focused around a regional area.  Some of them are specifically in Disney International, some are in other business units.  They no doubt serve as the internal 'voice of the customer and local marketplace trends' for the decision makers in multiple business units, not just DIMG. 

Likewise, I would expect that some of the people on the right are 'matrixed to' DIMG, vice working for them specifically.  For instance, Garry Randall no doubt is really in the HR organization functionally, but has internal customer responsibility for DIMG and the other affiliated HR folks assigned to DIMG.  DIMG no doubt pays for them too, they just have two bosses (one functional (HR) and one customer/project (DIMG)).

Likewise the memo lays out the general responsibilities for each LOB, which as Mr. Wadsworth notes in the memo directly, isn't all that far from where they are now.  It just gets everything digital related into one BU at the moment.

Interactive Studios:

• Games on console, PC, handhelds, and mobile gamers.
• Game development for the future

Disney Online

• Global web properties
• Virtual worlds development and ops (Toontown, PoC, etc.)
• Disney community and connectivity (domain management, global web site branding, etc.)

So as you can see, not too far from where they were before really. 

The last paragraph on the first page is the really only 'juicy bit' in the document beyond the above. 

"While we are moving to a more global structure, this does not remove the desire or willingness to develop local content. However, it does mean that these opportunities will now need to be balanced more directly with the global priorities of the DIMG organization. This is a step that I believe is critical for long-term success in the marketplace."

Warren Buffet once infamously wrote a brief blip that translated some overly difficult writing in a fund prospectus into what he called 'plain language'.  Here is my attempt at the same for the above quote:

"We MUST develop meaningful and useful content for our local markets, least we loose touch with what drives our brand and generates revenue in those places.  In the past we might not have managed these opportunities as well as we could have, so going forth we've put in place this new management structure to make sure we do a better job of watching out for our investment strategy.  We might still get it wrong but we will at least have had a plan and thought about it."

Good stuff, though I'm honestly surprised a little that being in a high tech part of the organization he still used a memo.  ;)

On that note, I'll be on vacation starting tomorrow, so I probably won't get around to updating the blog for better than a week or so.  Sure there will still be plenty to talk about when I return!

UPDATE:  Fixed a couple of typos and some sentence clarity.

A More Palatable Discussion on Disney Economics

Yesterday I made a pretty lengthy post on why I thought the analyst at Lehman who downgraded Disney (and the rest of the entertainment sector) didn't have very compelling reasoning for his downgrade.

Today Stephen Halpern over at BloggingStocks.com has an article that basically goes with the same things we noted yesterday as positives for the Disney company here.  He says many of the same things we noted yesterday: that most if not all of the companies segments have turned in pretty good profits so far, and gives props to Disney management for staying focused.

I agree with Mr. Halpern, and if I had money to invest in Disney shares for the long term, I'd be doing it right now buying it 'on the cheap' under $30 a share. 

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In other semi-related news on the stock and Disney relations front, Siemens just announced that they are going to but almost 17,000 jobs world wide as they struggle with long term profitability and growth.  Ouch! 

I just looked at TONS of jobs on Siemens website the other day in Central Florida.  They have a pretty large facility and biz unit in Orlando on the east side of town right next to UCF.  Wonder how much it will affect them?

Disney Downgrade = Ouch! (but is it right?)

I suppose it was bound to happen sooner or later.  If you've been reading this blog much at all (and granted I've only been posting for a month, so if you've read it at all, Thanks!), I've been focusing a good deal of articles to the larger macro-economic environment that TWDC faces and what the company 'appears' to be doing about it. 

Granted it's from a decidedly more business based look (despite my technology love and hope to be an Imagineer someday, I have a business background and interest as well), which can be bland reading sometimes I admit.  But I'm doing my best to keep it light and relevant. 

In the past several weeks, we've touched on some interesting financial topics:

• We talked about PI closing because of it not really equating to, as the real estate guys like to call it, its current 'highest and best use'.  An idea that Jim Hill's post today, among many others, corroborates well I think.
• We talked about Bob Iger and CFO Tom Staggs' work with Wall Street to try and paint TWDC as a different animal viz-a-viz other entertainment companies.
• We talked about what Bob Iger and others in the company seem to be up to on the digital media front.
• We had a discussion about Disney's debt position, to a certain extent.
• I noted a really good article by Kevin Yee about the toll that high oil could take on the parks.
• We talked about the increasing profitability of the now Disney Internet Media Group.

So today an analyst at Lehman Brothers downgraded Disney based on something very close to taking the general negative view on all of these.  Which is a real kick in the shins for Disney stock holders since the stock is already down $5 a share since mid-May (that's about a 15% loss in the last 6 weeks). 

He also cut his 2009 projected earnings from $2.56 a share to $2.25 a share.  That $.31 a share difference for the ENTIRE projected 2009 operating year (Oct 1, 2008 through Sept 30, 2009) amounts to almost a $600 million dollar drop in projected earnings.  That means he expects the WHOLE company to earn LESS than it did in FY 2007.  

I'm not sure I agree with all the reasoning that the analyst gave for the downgrade however.  We've established that the companies cash to debt situation has improved, that DIMG is making money, that there is plenty of money in the bank and so far they are no where close to tapping out their credit facilities.  The Studio is making good movies (and presumably money) as are the other parts of the company such as Consumer Products, etc.

Beyond that, company executives only have so many ways to increase bottom line revenues in an increasingly tough macro-economic environment like this one is shaping up to be. 

If you can't raise prices or sell more then the next fastest way to increased net profit typically is through cost control (discounting discounts of course, if they work). 

Cost control measures tend to use lagging measures however and often it is easy to overshoot your mark.  So you have to be careful.  When times are good and your pulling in gobs of money, you do your best to keep costs inline, but grabbing cash/market share/etc. is first and foremost.  When times are getting tough, companies start tightening early (layoffs or slowing hiring, cutting back overhead costs, etc.).  It's very easy to overshoot, but not know it until you can't do much about it.  It's certainly NOT an exact science.

As Jim Hill and Kevin both point out in some of their articles, Disney is doing their part to contain and lower costs, while increasing profitability of other entertainment categories where they can like re-doing PI.  I think they will continue to do that slowly for a while, though to you and I it won't seem slowly but rather acute.  We'll feel like we are losing LOTS of things at a pretty steady clip, but that's just good management folks.

We'll have to wait till the end of the month to see how the 3rd quarter did for the company.  Frankly I don't expect to see anything different at this stage from what we've been seeing previously.  Likewise, I wouldn't expect much change even through the end of the fiscal year.  Those vacations are already on the books and mostly paid for, the movies are already in the can and presumably costed on the books, consumer products is WELL into Christmas planning already, and I don't think much will change right away for ESPN or ABC.

Only Disney will know the forward looking projections based on bookings, turnstile numbers, screen revenues, etc.  And guys like you and I will only find out if they are truly worried when they start talking about next years projected earnings.

The stock is taking a short term beating for sure, but I'm not ready to throw the towel in yet on the companies long term prospects. 

Insight into the future of Disney 'Digital' Media?

As a technology guy by trade (and passion) I have been watching with great interest how NBC is telling people they are going to handle the upcoming Beijing Olympics, technologically speaking of course. 

Sure, they will have the typical prime time, weekend, etc. coverage on their group of associated channels, broadcast, cable, etc.  But the interesting part is what they are planning to do on the Internet.  What does this have to do with Disney?  I think a lot. 

NBC will, for the first time in history, not only do the typical broadcast thing, but they are making huge plans to stream an unprecedented amount of video on their Olympics portal NBCOlympics.com (over 2,200 hours online they claim).

Are you a big fan of Handball, but can't find enough coverage on the other 3,600 hours of cable programming to get your fix?  Sit down and boot up your browser, since chances are you can find it online.  Or want to replay that cool Judo move from last nights meddle round?  Ditto.

Sure, there seem to be a few restrictions.  You won't be able to watch the same stuff online at the same time it's on TV.  And you can bet it won't be ad free, or any such thing.  But I don't think anybody would expect it to be really, unless they were paying for it to come that way.

So the interesting thing of course is that NBC appears to be treating this like a big 'lab' as they call it.  When you read that article, you will see lots of questions that folks like Bob Iger, Anne Sweeney, and George Bodenheimer are asking today as well about Disney content online. 

You see this fact as well in some of the recent job postings online at disneycareers.com.  For instance, Job # 116870 entitled Manager Online Market Research Analyst for Disney Parks & Resorts in Florida has some of the following highlights:

• General Job Summary
  This position is responsible for the utilizing industry and secondary research strategies to develop business cases that drive value for the portfolio of websites within the Walt Disney Parks and Resorts Online segment.
• Required Skills & Education

- Bachelor’s Degree in Market Research, Marketing, Business, or related quantitative field; MBA preferred.
- 3-5 years market research experience for high volume consumer websites.
- Proven skills with web research tools like ComScore, Hitwise, Nielson, etc.
- Familiarity with web analytics tool such as Omniture, GOOGLE Analytics, Webtrends

Sure, this position is limited right now to the Parks & Resorts area, but my bet is that other positions already exist that look for the same types of information on a much broader level.  As the AP article notes, there doesn't currently exist an effective way like Nielsen does for TV to build a composite of the total viewership across all platforms. 

Bob Iger and crew have been out in front so far in testing much of the different methods to reach customers using digital media.  The streaming of movies, content, etc. online that they have been playing with to date show they are working on many of the same questions.

I am sure all the Diz executives will be paying very CLOSE attention to NBC's success (or failure), as will you and I, too.

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BTW, in the spirit of the 4th of July, if you haven't seen the Muppet's and Battle Hymn of the Elevator, you gotta go check it out at Muppets.com. 

It should come up automatically at Disney DxD after the fun Animal intro!

Happy 4th of July

Today we celebrate the independence of our country.  I hope we each take a moment today to reflect with pride and humility on the history of our nation and the sacrifice of our fathers and fore-fathers to ensure our way of life.

Walt Disney himself was a true patriot of America, as of course was his brother Roy. 

Roy of course served in World War I after enlisting in the Navy in 1917.  Ultimately Roy was sent to my current home town of Charleston, SC where he was assigned to the USS Houston, a retrofitted German cargo ship.  He ultimately was discharged on Valentine's Day in 1919.  David over at the Vintage Disney blog has a much more detailed accounting of Roy's Navy service with some great pictures here.

Most also know that Walt, too young to enlist, forged his papers to appear a year older(with his parents consent) that ultimately let him as his buddy Russel Maas join the ambulance corp under the American Red Cross, and he was sent to France.  Wade Sampson has more at a past entry a Mouse Planet here.

Walt never served in the actual military, but he was a strong proponent of America and the American way of life.  You see it in the very fabric of the history of both the studio:

• the military take over in Burbank
• the World War II movie 'Victory Through Air Power'
• the trips to South America that later led to 2 movies

And the parks:

• Great Moments with Mr. Lincoln
• America Sings
• Liberty Square
• The Hall of Presidents
• The American Adventure

And of course throughout the music of the parks and company.  It's everywhere.

So on this 4th of July as we celebrate the 232nd birthday of our nation, here are some links to just a few of some of the best of patriotic Disney.

• Voices of Liberty - God Bless the USA
• Voices of Liberty - This is My Country (Wow!)
• Voices of Liberty - Armed Forces Medley
• Voices of Liberty - 4th of July Special
• Voices of Liberty - Golden Dreams (I still get chills from this)
• American Adventure Finale (chills anyone?)
• The Hall of Presidents
• One Wore Blue, One Wore Gray
• Yankee Doodle Mickey - This is My Country (by Molly Ringwald!)
• Great Moments with Mr Lincoln
• America Sings

"Actually, if you could see close in my eyes, the American flag is waving in both of them and up my spine is growing this red, white and blue stripe." - Walt Disney

Disney debt gets 'cheaper'

Late last week the Walt Disney Company got a nice little boost from Fitch Ratings with an upgrade in the company's overall debt rating.  According to the the Associated Press article at Forbes.com, Fitch boosted Disney's long term debt ratings from 'A-' to 'A' and their short term debt from 'F2' to 'F1'.

Why does that matter to a Disney fan you ask?  So, a quick bit of finance 101 if you need it for why this matters, if you don't, skip the next few paragraphs to the last couple.

Fitch is the smallest of the three credit ratings agencies that are 'sanctioned' by the Securities and Exchange Commission to rate debt instruments.  The other two are Standard & Poor's and Moody's.  Fitch and S&P use essentially the same rating scale from AAA to D for long term debt and F1+ to D for short term debt, Moody's version is slightly different but very close. 

These rating scores are based on proprietary models built by each debt rating service that basically rate the company's STATISTICAL chance of default.  It is similar to how a life insurance company uses a mortality table to figure out the probability of you reaching a certain age without dying and setting your premiums based on that information.

So an 'A' rating puts Disney, according to Fitch, solidly in the 'economic situation can affect finance' category.  Which of course makes pretty good sense to me if you think about where Disney is in relation to the market.  Fitch is basically saying as long as the economy is good, Disney most likely is good.  If the economy is bad, Disney COULD do bad, but they probably won't. 

Banks usually use a so called 'risk free' investment such as a US Treasury Bond as the basis for making long term loans, since these debts are always considered AAA rated (you and I are such good interest payers.  Pat yourself on the back.).  Very, very, very few companies have AAA ratings on their debt (think like less than 10).

They then use a spread over the T-Bill rate for new borrowings to price new bond issuances in the case of long term deb (they use some other published rate typically such as the Fed Funds rate, Prime Rate, or the LIBOR rate for short term debt).  The lower your rating, the higher the spread and the more you pay in interest.  The more interest you pay, the less that you get to keep out of all those nice pieces of plush you sell in the park for profits.  Lower profits make investors, boards and the market grumpy, and as we discussed in depth the other day, they also put the cabosh on Bob Iger's performance pay (among others), limit cash flow, and often can lead to lower capital expenditures or inventory that might further improve the business.

How much does this affect Disney's debt service?  One example site I found here shows that for a move from A- to A can save a company like Disney as much as 30 basis points on 5 year debt.  30 basis points is .30%, so about a third of a percent different for the new rating over the old.  On every $1,000,000 in borrowings that accounts for about $15,000 less in interest paid using simple annual compounding over that 5 years. 

That may not sound like a lot, but TWDC closed out 2007 with almost $12 billion in borrowings and paid $593 million in interest.  Somewhere in the neighborhood of $7 billion of that are medium term notes like the 5 year note example above.  So you can see that adds up to a LARGE amount of money if they were to suddenly re-finance all those notes at a rate even .3% lower.  They won't do that of course, because it's too impractical and too costly, but it sure helps going forward.

Possibly more importantly of course is the psychological effect ratings increases have.  The fact that it has the potential to give the market a sometimes needed boost in confidence that a company is moving in the right direction can really be good for the long term prospects of the stock. 

Somebody thinks the folks at TWDC have it together, which is good news!

Downtown Disney & The Adventurers Club

I guess it should come as no surprise that Disney has announced the closing of one of our favorite places to go in Downtown Disney: the Adventure's Club. 

It shouldn't be a further surprise that the websphere has already, within hours of the announcement, posted an online petition asking for Disney to spare it the fate of so many Yesterland attractions.

I have to say, I am of a mixed bag on this one.  I REALLY like what Joe Rhode and the rest of the Imagineers did with the original club concept.  Even at the height of Pleasure Island, the Adventure's Club has always been an eclectic mix of brash and sometimes borderline bawdy humor, all still very tongue and cheek of course, but always a good time. 

After all, there is nothing quite like seeing your brother-in-law called up on the stage to sing and dance to Samantha Sterling belting out a tune with Fingers pounding away in the background.  Thankfully for him, all the digital images of the event in question never came out, but his 11 year old daughter thought it was a hoot!

We will miss the Hoopla!, the crotchety old Colonel Critchlow, the fun characters and of course the club theme song and to many others to mention.

The Island opened in May of 1989, almost 2 DECADES ago and at a very different time in Disney history however.  For instance, then:

• Pleasure Island was competing directly with the now mostly gone Church Street Station (at least gone from it's original incarnation, which included the very popular Rosie O'Grady's), which was wildly popular 
• MGM-Studio's opened essentially on the same day but the Animal Kingdom wouldn't exist for almost another decade
• Disney World had only about 5 Disney owned hotels (none of them in the value category and only one moderate)
• No DVC (Old Key West wouldn't open for another 3 years)
• The property only had 1 water park which also opened in 1989(Typhoon Lagoon)
• Downtown Disney's West Side didn't open for almost another 8 years (1997)
• Universal wouldn't build CityWalk for another 5 years!
• Gas was less than a buck a gallon!

So Walt Disney World in 1989 was JUST beginning the transformation into the all encompassing resort it is today.  Frankly I think at a time when people enjoyed clubbing, bar hopping, dancing, etc., more than we do today, Disney really had nothing to compete with the late night crowds leaving the resort area for Rosie's.  Especially given that a huge number of guests were already having to stay off property due to the limited number of 'affordable' accommodations on property. 

No doubt the folks at Disney haven't taken this decision lightly.  I really believe they don't just do these things for fun and to torture us.  There is always some reason, or reasons: 

• the limited hours that places like the Adventures Club is open
• not enough people because of those hours through the turnstiles to make the few club's left a long term profitable enterprise
• most of Pleasure Island lost its exclusivity long ago
• Church Street Station by the late 1990's was in a downward spiral with the growth of Disney, SeaWorld and Universal, that it basically imploded just a few years ago, so its no longer a factor
• the general resort area is more than TWICE as large as it was in 1989 and almost always has late night entertainment someplace the guest has already probably paid for (Extra Magic hours anyone?)
• changing guest tastes, buying habits and visit composition (larger family groups, more families with younger children, etc.)

It seems obvious then that some though decisions had to be made.

So we bid farewell to a dear friend, we hope for something cool and unusual to sneak out of Disney into the area in compensation; something more than a highly stylized or themed restaurant maybe. 

And we sure hope Jim Hill is right in stating that the Adventures Club concept is not dead, just waiting for a new park opportunity to spring forth and once again give this great but soon to be forgotten gem new life.

Until then friends, 'Kungaloosh!'