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Star-Wars ... and the Winner is: Disney

Wednesday 23 December 2015

Who will benefit the most from the sensational movie debut of Star Wars? The owners, of course. Shareholders of Walt Disney.


Walt Disney is well known for its theme parks and cartoon characters like Mickey Mouse. Many investors are not so keen and have in the past shunned Disney shares (ticker symbol: DIS). A typical mistake with financially fatal consequences: A lack of research in the culture, and knowing the way how company operates.

 

In fact, Disney shares were among the best investment choices one could have made over the past decade. The stock has almost quadrupled in value since of 2006. Disney now controls a media empire which is valued on the stock market

at around 70 billion dollars. Starting with the Mickey Mouse Parks, Disney systematically developed a "powerhouse"

which is unequalled.

 

In addition to the "Resorts and Parks" division Disney is a heavyweight on the American television landscape with

the "ABC Television Group" station (in short Disney TV). The third pillar Disney recognised early on, was the growing importance of "media content". The trend behind this is quite simple to explain: The population of the world is growing, while people have more leisure time and easy access to a wide range of media channels. They all need content from globally famous

brand names.

 

Unlike any other company, Disney succeeded to buy, integrate and successfully expand media companies:

 

Starting in 2006 Disney acquired for $ 7.4 billion the traditional animation production of Pixar Animation Studios founded by Steve Jobs. That was a radical change. Together with it's competitor DreamWorks, Pixar stood out in the film business with its technology. Acquiring the film rights to Finding Nemo, Ratatouille, Cars, Up and Toy Story which are now part of the Pixar catalog of films.

 

The entire world of cartoon characters from Marvel Enterprises was added in 2009. The purchase price for that totalled four billion dollars. Among other things, the film characters Spiderman and Hulk now came under the Disney umbrella.

 

Disney acquired the entire Lucasfilm Ltd. company from film pioneer George Lucas in 2012 for $ 4.05 billion, which was a great success. Since then everything to do with Star Wars and Indiana Jones are part of the Disney group.

 

Disney sits on a true treasure trove of movie options. Merchandising, online media distribution, movies and classic

television.

 

Whether from its old inventory or by continuing adaptations, as it is now doing with Star Wars, Disney can in one fell swoop reach larger audiences worldwide. Meanwhile the strong cash flow from the lucrative leisure park business is protected. When you compare this to only producing film, it becomes a priceless advantage.

 

Good Walt Disney, God rest his soul, when he created the character "Mickey Mouse" with a few strokes of the pen he certainly would not have expected this to happen. A nice example of how substance can be combined with foresight and good management to benefit shareholders. With this example, from the world of "value investing" for the "ME Fund - Special Values" team, I wish you all a Merry Christmas.