Disney Dollars: What’s Generating Profit in the House of Mouse?

A conversation about Disney yesterday reminded me of the below gem of an illustration. Drawn in 1957, it shows just how far ahead of the game Disney were in understanding the power of a multifaceted brand ecosystem, with each line of business feeding, and feeding off, the others.

At the centre of the web, bordered with Hollywood lights, is the ‘Creative Talent of Studio’ as manifest through ‘Theatrical Films’ - then the cash cow of the Disney empire.

It got me thinking about the income generating power of Disney’s current lines of business and which would get the Hollywood lights border were current CEO, Bob Iger to redraw Walt’s map 66 years on.

A quick dip into last quarter’s earnings report gave me the data to create the below bubble chart, where size of bubble reflects the revenue generated by the segment and position on the Y-axis reflects its operating income (or loss).

Whilst it’s no secret that Disney has been pumping cash into its direct-to-consumer (D2C) propositions to try and secure a bigger slice of the future home viewing pie, it’s still striking to see the size of the current losses (over $1bn in a single quarter) in the context of the highly profitable Parks & Experiences ($2.2bn) and Linear Networks ($1.3bn).

Despite bringing in the smallest amount of revenue, Consumer Products also returned a healthy profit ($861m) last quarter.

Content Sales/Licensing & Other was the only other segment in the red, recording a loss of $212m, as Disney’s shift away from licensing content to third parties towards distributing D2C starts to hit the bottom line.

Balancing the strategic necessity of getting scale for its D2C propositions with the revenue from content licensing, often to competitors, is tricky and Iger appears to be considering a bit of course adjustment on this.

Video games is one line of business Walt couldn’t have anticipated which has the potential to buoy Disney’s content licensing coffers without undermining the prospects of its D2C video streaming offers and its 2023 pipeline is looking strong, with MARVEL World of Heroes, Disney Illusion Land, Disney Speedstorm, Tron: Identity, Aliens: Dark Descent and Star Wars: Jedi Survivor all slated for release.

The incredible first fortnight sales of Warner Bros. Games’ Hogwarts: Legacy (12 million units generating $850m in revenue) and the critical and commercial success of HBO’s The Last of Us, suggest that the lines between TV and video games are only going to get stronger for Disney and the other content behemoths (one of my 10 media predictions for 2023).

Regardless of which segments are currently bringing home the bacon (Parks & Experiences was unsurprisingly loss-making at the height of the pandemic), having strong IP is essential to the ecosystem, which in turn relies on some combination of smart acquisitions (something which defined Iger’s last tenure as CEO) and strong creative talent (something Iger is promising to focus the company on during his current tour of duty).

I certainly wouldn’t bet against Disney managing to bring its D2C segment to profitability by the end of 2024 (a target Iger recently reaffirmed).