Disney Plans For Aggressive Growth In Parks And Education

According to market estimates, sales of new DVDs fell 20% over the year in 2009. Total spending on home entertainment, which includes DVD and Blu-ray rentals and sales, together with electronic downloading, fell 10% to $4.7 billion for the year. Researchers estimate that the consumers are shifting from the purchase of DVDs to an online streaming model such as that offered by Netflix. Declining DVD sales are impacting other traditional entertainment companies’ market performance. Recently announced results by Disney reflected this weak market.

Disney’s Financials
Walt Disney’s (NYSE:DIS) Q2 revenues grew 6% over the year to $9.08 billion but missed the Street’s target of $9.12 billion. EPS of $0.49 also fell short of the market’s expectations of $0.57.

Increasing ad sales helped to drive up revenues from the media networks segment by 12% over the year to $4.3 billion. The Parks and Resorts division’s revenues grew 7% over the year to $2.6 billion due to improved attendance at the Paris and Hong Kong parks. However, overall park performance was impacted by the Japanese tsunami, which led to shutting down of the Tokyo Disney Resort for three weeks. Revenues from the consumer products and interactive media segments grew 5% and 3% respectively to $0.63 and $0.16 billion. However, studio entertainment revenues fell 13% over the year to $1.34 billion driven by the “very disappointing performance” of the movie “Mars Needs Moms” and the declining DVD sales market.

Disney’s Resort Growth
Earlier this quarter, they broke ground on the Shanghai Disney Resort, their sixth resort, and at $4.4 billion it is the company’s largest foreign investment. The park is proposed to open in five years. They are also getting ready with the finishing touches on Aulani, their Hawaii Resort & Spa, which will open its gates this August. Additionally, Disney is expanding Fantasyland at the Magic Kingdom in Florida, to double the size of one of Disney World’s most popular sections. Work is also on in Papenburg, Germany, to make the Disney Fantasy, a ship expected to set sail in the spring of 2012.

Disney’s Geographic Expansion
It is not just through parks that Disney is expanding internationally. In China, they have also opened English language learning centers. China’s private education market is estimated to grow to $80 billion by 2012. The English language education market is expected to grow 29% over the next four years to $24 billion. Disney English is working on capturing this market and already has 22 learning centers operational in the country. The goal is to not only cater to the demand for English classes for kids aged two to six, but to also build awareness of Disney’s brands among this young and impressionable demographic.

In India, Disney is considering expanding their investment in their India joint venture, UTV Software Communication. UTV is an India-based motion picture services provider. Disney currently owns 50.4% of the JV and is rumored to be evaluating expansion of the investment to strengthen their position in the country.

Additionally, the company is also expanding their presence in the U.S. and announced plans to open 40 more retail locations within the country. The retail stores will now feature an interactive Disney store concept, where consumers will be able to get special attractions such as a castle with a “magic mirror” featuring movie clips of Disney princesses, as well as a place to build a custom toy.

Revamping Disney.com
Disney is also working on revamping their digital offering. Despite the growing presence of Netflix, Disney does not eye them as much as competition; rather, it regards Netflix as another channel through which to distribute their content. Meanwhile, they are also building their own video service that will deliver content through a proprietary site or platform. Disney.com will offer subscription services, have advertising-based revenues and will also feature various ways of paying on a pay-per-view or micropayment basis.

The stock is trading at $39.72 with a market capitalization of $75 billion. It touched a 52-week high of $44.34 in March of this year.