DIS_Analyst Report_01312015

CFA Institute Research Challenge
hosted by
CFA Society of Los Angeles
California Polytechnic University

CFA Institute Research Challenge 1/31/2015
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Growth Rates 10 Year 5 Year
Revenue Growth 4.7% 6.2%
EBITDA Growth 10.2% 13.1%
Earnings Growth 12.3% 17.8%
Free Cash Flow Growth 8.2% 14.3%
Book Value Growth 7.2% 7.9%
Fair-Valued Low Risk Outperform
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS
Figure1: Projected EPS
$4.42 $4.47 $4.78 $5.10 $5.44
$5.79
2014 2015 2016 2017 2018 2019
Highlights
We issue an OUTPERFORM recommendation with a target price of $105.48
as we believe the investment will outperform the market (estimated 10%
return), with a 69.1% confidence.
Key Drivers:
 Star Wars: Although we believe the acquisition of Star Wars is al-
ready factored into the current price, we see the franchise outperform-
ing current market expectations over the next three years. We place the
Star Wars franchise at the forefront of a robust movie pipeline of 21
movies planned.
 Disney Shanghai: With 330 million income-qualified people (nearly
the size of the U.S. population) within a three-hour travel radius of the
park, Disney Shanghai is positioned to spearhead international expan-
sion.
 ESPN: We expect affiliate fees and add revenues to increase great-
er than projections. In the event of a changing consumer environment,
Disney will remain on the forefront with the leveraging power of ESPN
networks.
Strengths:
 Spillover Effect: With the broad range in operational fortitude, Dis-
ney has a built in ability to monetize intellectual property in numerous
business environments (i.e. Frozen).
 M&A Excellence: We express great confidence in management’s
ability to acquire companies that create additional synergies within
Disney’s current portfolio (i.e. Pixar, Marvel, Lucasfilm).
Risks:
 Future Growth: Relying on strong brand loyalty and differentia-
tion, however Disney is still susceptible to consumer preferences and
the economic climate.
Market Profile
52 Week Price Range $69.85 - 95.93
Beta 1.06 - 1.1
# of Floating Shares 1.56 Billion
Shares Outstanding 1.7 Billion
Market Capitalization 161.02 Billion
Institutional Holdings 64.90%
Insider Ownership 7.73%
Return on Equity 16.00%
Debt to Equity 30.80
Trailing P/E Ratio 22.26
Price to Book Value 3.57
Quick Ratio 1.02
“The Walt Disney Company's objective is to be one of the world's leading producers and
providers of entertainment and information, using its portfolio of brands to differentiate
its content, services and consumer products. The company's primary financial goals are to
maximize earnings and cash flow, and to allocate capital toward growth initiatives that
will drive long-term shareholder value.”
Investor Relations Team at The Walt Disney Company
Figure 2: Disney Company Profile
Walt Disney
Founded in 1923
Headquarters Burbank, CA
Primary Industry
Broadcasting &
Cable TV
Chief Executive
Officer
Bob Iger
Source: Company Filings
Date: 1/31/2015 Ticker:DIS Current Price: $90.96 Target Price: $ 105.48 Change in Price: 15.96%
Sector: Consumer Discretionary Industry: Media Exchange: NYSE

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BUSINESS DESCRIPTION
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS
 Media Networks provides the majority of revenue for Disney. This segment is a combination of
broadcast, cable, radio, publishing and digital business. Most of the revenues are derived from adver-
tising fees and subscription fees from cable, satellite and other network providers. Primary expenses
include programming/production costs, technical support costs, distribution costs, and operating
labor. Two divisions, ESPN Inc. and Disney/ABC Television group provide the outlets for content.
Disney also has equity interest in A&E Television Networks, Hulu and Fusion.
 Parks and Resorts has grown to become the worldwide leader for family travel and leisure. In
total there are 11 theme parks and 44 hotels across 6 resorts located in California, Florida, Paris,
Hong Kong, Tokyo and the soon to be opened park in Shanghai. Disney accumulates revenues through
ticket sales, hotel and room charges, food and beverage sales, merchandise and sales/rentals of prop-
erties. Major costs include: labor, depreciation, merchandise, food/beverage, marketing/sales, and
infrastructure costs.
Studios is responsible for studio movies, musical recordings, direct-to-video content and live on
stage plays. Film content is distributed under Disney, Walt Disney Animation Studios, Pixar Produc-
tion Studios, Disney nature, Marvel Studios, Touchstone Pictures and Lucasfilm. Walt Disney Records
and Hollywood Records produce and distribute musical content while the Disney Theatrical group
produces and licenses live events. Revenue generators include film distribution, music distribution,
ticket sales, and licensing from live entertainment events. Costs include: film cost amortization, distri-
bution expenses, and production expenses.
 Consumer Products designs toys, apparel, books and fine art; providing product experiences for
consumers away from Disney. It is broken down into three sections: Merchandising, Publishing, and
Retail . Agreements are made between manufacturers to license and produce Disney’s wide variety of
characters and its valuable intellectual property. Products are sold via Disney Stores and online
through the company’s website. Segment revenues are generated from licensing agreements, mer-
chandise sales from retail/online stores, and fees charged at English learning centers. Major costs
include: distribution expenses, costs of good sold, operating labor, and retail occupancy.
 Interactive creates and distributes Disney content across several media platforms, and is driv-
en by video game Disney Infinity. The segment generates revenues from the sale of
multi-platform games to retailers and distributors, licensing content to third-party game publishers,
and online advertising/sponsorships. Costs include: product development, costs of goods sold,
marketing expenses, and distribution expenses. In an effort to lean out the segment, Interactive exec-
utives have decided to focus on mobile games and apps; shifting away from online computer experi-
ences.
Business Description
The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in five business
segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive. The company’s most valuable assets include
The Disney Channel, ESPN cable networks, the ABC broadcast network, the Walt Disney World Resort, The Walt Disney and Pixar studios,
Marvel studios, and The Disney Store retail chain. We believe Disney’s biggest strengths to be its portfolio of products, brand reputation, competen-
cy in acquisitions, operating breadth and localization of products.
Figure 3: Segments Contributions to Revenue
Source: Company Filings
Media Networks Parks and Resorts
Studio Entertain-
ment
Consumer Products
Interactive
Company Strategy. The Company’s goal is to differentiate its content, services, and products using its brand portfolio, and to
ultimately remain one of the world’s top producers and providers of entertainment and information. According to management, the company focuses
on three fundamental goals:
 Generating the best creative content possible. Through acquisitions and expansion, the Company has grown its brand portfolio to include ABC,
ESPN, Disney, Pixar, Marvel, and Lucasfilms. Through its diversified businesses, Disney’s product mix is a combination of fresh, new franchises, and
classic favorites. This enables Disney to span generations and keep its audiences, primarily families, engaged to its brands and evolving creative
content.
 Fostering innovation and utilizing the latest technology. One way Disney continues to innovate is through its internal digital community, the Crea-
tive Lab. The Lab is a way for employees to share anything they find inspiring or insightful, whether it be developing ideas, experiences, products, or
any other form of creative content. This encourages employees to think creatively, and is one way Disney has developed an innovative company cul-
ture. Disney Research is a branch of the company that collaborates with academic institutions to research a broad range of commercially important
challenges. Disney is constantly looking for emerging consumer trends and new technologies in order to stay ahead of its competition.
 Global expansion into new markets. The Company invests heavily in international expansion of its businesses. The expansion of its Parks and
Resorts segment through the investment in the new Shanghai Disney Resort is the most notable decision Disney has recently made in alignment with
this pillar of its strategy.
Management. Currently, the two main influential officers are Robert Iger and Jay Rasulo. Robert Iger, Chairman and Chief Executive Office r,
has held the position since 2005, and has played an integral role in Disney’s success over the years. Some of his notable actions include the acquisi-
tions of Pixar (2006), Marvel (2009), and Lucasfilm (2012). Recently, the company renewed his contract as CEO until 2018. We believe Iger’s’ contract
extension is a positive sign for the company. James Rasulo, a Senior Executive Vice President and Chief Financial Officer, was appointed to the position
in January, 2010. Rasulo has greatly influenced M&A activity at Disney.

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INDUSTRY OVERVIEW and COMPETITIVE POSITIONING
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS
Source: PwC
Figure 4: Projected Global Growth of the Middle Class by Region
2009
2020
2030
Industry Analysis. The Walt Disney Company operates within a diverse scale of industries, making it difficult to categorize it within any one
particular industry. Thus it is necessary to dissect the operations of the firm into its individual respective industry segments. Nonetheless, any in-
dustry or macroeconomic factors that may affect consumer behavior and discretionary spending will have an impact on the company as a whole.
Competitive Positioning.
Across its business segments, Disney competes with media conglomerates, hotel companies, and other theme parks. Its top competitors include
Viacom, CBS, Comcast, 21st Century Fox, Sony Pictures Entertainment, and Time Warner. A great sense of brand identity across all of its segments
gives Disney an advantage over its competitors. Not only is the Disney brand strong, but so are the brands of its subsidiaries, such as Marvel, Pixar,
ESPN, and now Lucasfilm. The Company also has more diversified sources of revenue than any of its competitors, as its five business segments span
over a wide variety of industries. Disney is a strong competitor in all of its respective industries, and should continue to perform well if it can con-
tinue to adapt to changing consumer preferences and economic conditions.
Macroeconomic Analysis.
Shift in Economic Conditions. Disney operates in the consumer discretionary sector. An increase in prices in this sector, or in the price levels of
other sectors, could have an effect on consumer spending in a way that could hurt Disney’s revenues. The company has seen that a declining econo-
my impacts spending across all segments– at its parks and resorts, purchasing of and pricing for advertising on its television networks, performance
of its home entertainment releases, and purchases of its consumer retail products. Currently, we are seeing moderate growth in the economy, which
stimulates revenues. The domestic economy is forecast to grow over the next few years, but if we see another unexpected economic decline in the
near future, Disney will feel an impact. (See appendix 41, source: IMF data)
Changing Consumer Preferences. To be competitive, Disney must adapt to evolving consumer tastes. New, evolving technologies have a significant
impact on consumer preferences. The Company must be quick to adapt and anticipate emerging trends that lead to shifts in consumer preferences.
Consumers still spend a significant amount of time viewing media content on traditional platforms, but across age groups, people are spending more
time viewing content on their cell phones, computers, and mobile devices.
Global Rise of the Emerging Middle Class. This emerging demographic will have more disposable income, become increasingly more
‘connected’ and mobile, and offer a readiness to pay for newer, more compelling content experiences. The growth of the aspiring middle class is a
global trend, but it can be difficult to assess the preferences and media/entertainment demands of these consumers, as they vary widely from mar-
ket to market. A strong ability to localize content to fit appropriate market demands will be critical for media conglomerates to capitalize on the
emerging countries middle class. In the United States, the emerging middle class is already developed, but we are seeing a economical uprising of the
Hispanic middle class. Areas that are expected to see the most growth are the Asia-Pacific, Middle East/North Africa, Central/South America, and
Sub-Saharan Africa regions. (See Figure 4)

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INDUSTRY OVERVIEW and COMPETITIVE POSITIONING
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS
Media and Entertainment (M&E)
Expected Growth. The industry is expected to grow at a moderate pace, at an estimated CAGR of 6.7%, over the next five years in the
United States. Digital advertising, broadband services, and TV advertising will see the most significant growth within the industry. All other major
global regions, with the exception of Western Europe, are forecast to grow at a faster rate than the US in the same period of time. This opens up
many new opportunities for companies within the M&E industry, so long as they can strategically capitalize on this growth.
Demand Drivers. Demand in the industry is driven by a multitude of factors. Leisure activity and consumer spending habits affect how often
and how much consumers are willing to spend on entertainment. Advertising revenue is a significant driver for the industry, which is
connected to the quality of content, for companies with the most popular content can demand higher advertising rates. Investing in quality content
is critical for competitors to retain viewers and to attract new ones. Program popularity helps build brand loyalty, which encourages consumers to
consistently demand content from the same providers. Consumers are also willing to pay more for more desirable content.
Challenges. Although M&E is evolving, the greatest challenge faced by the industry is the pressure arising from growing presence of the
digital distribution and consumption of content. The speed and impact of this transformation is forcing major players to rethink their digital
strategies going forward in order to stay competitive. Consumers are now taking control of choosing when and how they want to view content,
which has never been seen before in the industry. Companies must adapt to this developing trend or face the risk of becoming obsolete as the indus-
try progresses further into the digital and mobile age. Case and point where BlockBuster lost market position to Netflix in changing digital demand.
Travel and Tourism.
Expected Growth. The US Travel Association estimates an annual growth rate of approximately 3% through 2015. In 2015, hotel occupancy
levels are expected to reach record highs. Greater transparency in the hotel market has stimulated competition, and hotel valuations are on the rise
as a result. Travel momentum, for business and leisure, will remain strong as the economy continues to grow, and US visitor exports (the measure
of money spent by international tourists) are projected to increase by 4%. China’s outbound tourism industry has been growing exponentially, and
will continue to progress at a favorable pace for the industry.
Demand Drivers. Consumer discretionary spending and the strength of the economy are powerful indicators of the health of the industry. Efficient
operations and marketing techniques can significantly distinguish the success of one company from another. Industry giants are well suited to
changing demand in the economy and can much more easily build new attractions with access to large amounts of capital, while keeping economies
of scale in operations and marketing. Companies in the in the industry are subject to seasonality trends but are especially influenced by the holiday
and vacation school schedules.
Challenges. Differentiation among competitors is a primary challenge for businesses in the industry. Businesses must have a deep under-
standing of what type of consumers they are marketing to. Government regulations also pose a challenge for the industry as there are many intrica-
cies in the laws that businesses are required to follow, especially on a global level. Generally, lower wages are paid to employees in the industry,
which can make it difficult to hire a quality workforce. Companies must find efficient ways to utilize the combination of expensive equipment and
low-cost labor. Insurance is a costly expense as well, and companies should be aware of how healthcare reforms could significantly affect revenues.
Barriers to entry for the amusement park businesses are high due to the necessity of huge initial capital investments.
Retail.
Expected Growth. Domestic retail spending is projected to decline through mid-2016, but at that point, spending is expected to turnaround and
experience growth through 2017. Growth in the industry is closely tied to GDP, personal income, and consumer spending,. The retail and consumer
product sectors are expected to grow at a moderate rate through 2018.
Demand Drivers. Digital influences on consumer choices is increasing as the prevalence of websites, social media, and mobile apps grows.
Changing consumer preferences affects the demand for different products and brands across the sector, so it is necessary to be aware of these shifts
as they emerge. The toy market compared to the overall retail sector is generally more resilient during times of recession and is also more quick to
recover from such times.
Challenges. Brand loyalty across the industry has slipped in recent years due to increased competition from less expensive brands and pri-
vate labels. Despite a growing economy, the recent economic crisis has caused consumers to be more cautious and frugal when it comes to retail
purchases, as many still believe the economy is in a recession. Retail companies must adapt with growing digital trends, such as e-commerce and
effective digital marketing, to stay competitive. The industry is also expected to see more M&A activity as larger companies take advantage of extra
cash, low interest rates, and increased access to credit. They must adapt to trends/consumer preferences and market effectively; risks: economic
health affects income/spending on non-essentials, increasing competition from electronic entertainment.
Figure 5: Projected GDP Growth by Region
6%
5%
4%
3%
2%
1%
2015 2016 2017 2018 2019 2020 2021 2022 2023 20240%
Figure 6: Five Forces Analysis
Source: Team Estimates
Legend
0– No threat to
the business
4-High threat to

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INVESTMENT SUMMARY
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS
Investment Summary
Media Networks— We believe that ESPN affiliate fees will continue to rise. ESPN is the by far the market lead-
er. Catalysts also include the 20 year SEC Network, contract and 12 year contract for the BCS Playoffs. Con-
cerns: There is a major shift with how media content is delivered, and Disney will have to adapt.
Studio Entertainment—The primary driver for Disney’s Studio Entertainment revenue is the content
produced within the Lucasfilm brand. The upcoming Star Wars film, which will be released in fiscal 2016, is
highly anticipated by both consumers and analysts. Developments within the Marvel franchise will be a
catalyst for this segment, and others, as well.
Parks and Resorts—Parks & Resorts has great brand equity and is continuously benefiting from synergies
created in Studio Entertainment. We believe that its biggest catalyst will come with international expansion
into areas of growing middle-class populations, i.e. China, but the addition of Star Wars, Avatar, and Marvel
themed attractions at existing and new theme parks will keep the brand fresh and appealing to consumers.
Consumer Products—Disney's Consumer products division is due for strong growth prospects in next few
years with the revitalizing of the Star Wars Trilogy; new hype and demand will spillover to merchandise. As
the number one licenser in the world with six of the top ten brands, Disney has seven times greater sales than
its closest competitor.
Interactive—Continuing the segments recent success will stem from development around the Infinity
franchise. With the success of the sequel, Infinity 2, Disney is poised for continued growth with the inclusion
of new characters from the Marvel and Star Wars franchises.
Disney’s fundamentals and valuation are indicative of a OUTPERFORM
We have a one year target of $105.48, justified by the ranges of values yielded by many pertinent valuation
methods that are widely used in this industry. Disney maintains strong business fundamental, industry leading
segments and attainable growth opportunities, which support our recommendation. Over the years, Disney’s
strong balance sheet and outstanding operating performance have translated into the company’s stock growth.
Disney is structured with 5 business segments; however at its core Disney derives its competitive advantage
through their cutting edge integration of technology and creative content within the entertainment industry.
We view Disney’s ability to create intellectual property and cross-fertilize profits in other segments, along with
their platform agnostic strategy in their Media Segment, as the companies defining competitive advantage.
These distinctions allow Disney an edge in both maximizing profit across mediums that other companies do
not have the infrastructure to reach.
Industry Leading Segments
Historically, Disney has pushed the markets they are involved in forward, and notably done this while
continually filling a vault of intellectual property they can resurface and reuse. Disney is an industry leader
across the segments they represent. They maintain the most visited parks and resorts and ESPN garners the
most subscription and ad fee bargaining power of any cable programming while Disney Studio Entertainment
owns some of the most valuable movie content rights in history.
Strong Drivers for the next 3-5 Years
Parks and Resort and Studio Entertainment Segments have the strongest outlook to drive the company over
the next several years. Within Parks and Resorts, the 2016 opening of Shanghai Disney, along with the new
additions of Magic Plus bands and the Magic Kingdom’s AvatarLand will drive strong near term growth. Studio
Entertainment will be heavily taking advantage of the Marvel and Star Wars content over the next 3-5 years.
We view this line up as one which is as close to sure fire blockbuster hits as the film industry has ever seen.
Unique Entertainment Leader in Technology and Content
Disney has time and time again blazed the trail for innovation within entertainment. We view management’s
approach to excelling in both technology and content as indicative of what separates Disney apart from it’s
generalized competitors. Disney’s ability to pursue both innovative technology and content in both their Parks
and Resorts as well as Studio Entertainment, speak to their depth of infrastructure and the talent they attract.
Moreover, the infrastructure and culture of Disney allows them to successfully be both create new content and
excel in technology and this long-term is what will drive continued leadership among their segments.
Figure 7: Disney’s Market Share
Across Primary Industries
Consumer
Products
Media
Networks
Studio
Entertainment
Parks &
Resorts

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VALUATION
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS
Price
Probability=.907
$90.96; Current price
Figure 11: Statement of Probability
Source: Team estimates
VALUATION
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS
Figure 8: Model price ranges with
1 standard deviation from mean;
changing peer group for comps
Year Dividend Sustainable Growth
2014 1.15 12%
2013 0.86 11%
2012 0.75 11%
2011 0.60 10%
2010 0.40 9%
2009 0.35 8%
2008 0.35 12%
Figure 12: Historical Dividend Data
Source: Charles Schwab
$96.68
$93.24
$80.42
$88.0
$118.8
$115.16
$106.52
$116.5
73 80 91 103 118 138
Outperform
Market perform
Underperform
$105.48.04
.03
.02
.01
.00
LDCF UDCF DDM COMPS
Unlevered DCF 50% $107.77
Levered DCF 20% $104.20
COMPS 25% $104.34
DDM 5% $93.47
Price $105.48
Figure 10: Model weighting
We built four valuation models for Disney with various drivers discussed above. Parameters were set for each
model to run a Monte Carlo Simulation with 1,000,000 trials of the fair price estimate and assigned a weight in
the overall recommendation based on our confidence in each model’s parameters.
We issue an OUTPERFORM recommendation with a target price of $105.48 as we believe the investment will
outperform the market (estimated 10% return), with 69.1% confidence (see Figure 9 and appendix V page 111).
Furthermore, we are 90.7% confident the current price undervalues the fair price estimated in our model (see
Figure 11).
Unleveraged Discounted Cash Flows Model
The terminal value was estimated using both the EBITDA multiple method and the perpetuity growth method.
However, we selected the terminal growth rate to estimate the terminal value over the EBITDA multiple meth-
od as it is considered to be a superior method. This model received the highest weight as it is considered the
most academically accepted model. (see appendix V pages 102-103)
Price estimate: $107.77; Model weight: 50%
Leveraged Discounted Cash Flows Model
The terminal value was estimated using both a PE multiple method and a perpetuity growth method. The team
used the terminal growth rate to estimate over the PE multiple method to maintain an intrinsic valuation
approach. We used the cost of equity to discount the free cash flows available to common equity. A moderate
weight was assigned here as the team recognizes that as the company’s capital structure consists of 9.3% debt,
the Unleveraged DCF is the stronger model between the two DCF models. (see appendix V pages 104-105)
The Comparable Model
There is no company directly comparable to Disney, and properly identified this as a risk to the models validity.
However, the team agreed that with careful selection and thoughtful metric weights, the model would add val-
ue as the sole relative valuation approach. Seven key market metrics were selected, weighted, and calculated to
determine an industry average to compare Disney to. (see appendix V page 106-109)
Dividend Discount Model
Historical dividend, return on equity, payout/plowback ratios, and sustainable growth rates were analyzed to
estimate dividend projections. A three-stage growth model was utilized with the following stages: 2015-2019,
2019-2024, and terminal. As Disney’s dividend payments do not show a consistent growth trend, and had three
consecutive zero growth years during the Great Recession, the DDM was not considered as effective as it may
be for other companies that have predictable and unwavering commitment to dividend growth. (see appendix
V page 110)
Probability
Figure 9: Price Distribution using
Monte-Carlo Simulation

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VALUATION
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS
Summary of Valuation Model Input
 Sales: The team tried multiple methods before deciding on the best approach for forecasting
sales. The following trials were conducted and referenced:
 Multivariate Regression by Operating Segment: Each of Disney’s 5 operating segment sales
were forecasted using multivariate regression on indicators such as Real GDP, Population Growth, 10
year treasury yield, unemployment rates, and various binary (or “dummy”) variables. The regression
output, adjusted R-squared, was used to determine the best model for each segment and the betas
were used to forecast revenues based on forecasted values. “Dummy” variables were used to capture
the effects of seasonality and recessions on quarterly sales. (see appendix V pages 91-94)
Geographic GDP Forecast by Region: Forecasts were pulled from the Organization for
Economic Co-operation and Development and multiplied by the historical beta estimate for the
following 4 geographic segments of Disney: North America, Europe, Asia Pacific, and Latin America &
Other. Random sampling was conducted for each year of forecasts with in a normal distribution
around the historical geographic segment’s mean. (see appendix V pages 95-98)
Auto-regression by Operating Segment: Quarterly sales data by segment was used to build an
auto regressive model to forecast sales with a 2-year lag period. (see appendix V pages 99)
 Cost of Equity: The cost of equity was calculated using the CAPM and Fama-French III Factor
Model. 10 years of historical treasury yields were pulled from the Federal Reserve Board for 10, 7, 5,
3, 2, & 1 years and years 4, 6, 8, 9 were estimated using linear interpolation. 10 year averages were
calculated to estimate a different cost of equity for each year of forecasted free cash flows. Disney
excess returns were regressed on three factors: 1. The excess return of the market 2. The perfor-
mance of small cap stocks relative to large cap stocks (Small minus Big) 3. The performance of value
stocks relative to growth stocks using book-to-market (High Minus Low). (see appendix V page 86)
 Weighted Average Cost of Capital (WACC): Debt capital data on outstanding bonds/loans were
pulled from FactSet to determine the weight of debt and cost of debt. The risk free rate, beta, market
risk premium, and regression residuals (epsilon) were simulated based on historical standard devia-
tions from the mean. The team assumed the debt capital structure would remain fairly constant and
fixed the weight of debt and weight of equity corresponding to current levels. (see appendix V pages
87-90)
 Equity Risk Premium: The estimated equity premium was conservatively estimated using a 10 year
average of the S&P 500 minus the risk-free rate at 5.5% (see Figure 14).
 Terminal Growth Rate: Under the assumption that Disney will be able to at least grow prices
with inflation and see additional growth as a portion of real GDP a terminal growth rate was
estimated. With a long-term inflation estimate on par with the Federal Reserves 2.0% estimate and
long-term real GDP growth estimate of 2.5%, conservative terminal growth rate range of 2.0% to
3.0% was used for our random sampling in the Monte-Carlo simulations.
Risk to Target Price
The team realizes that there is a certain level of uncertainty in each model and took necessary
precautions to help account for this uncertainty (i.e. Monte-Carlo Simulation, interest rate changes
effect on discount rates, and different weighting to each model).
Key Risk #1: In the DCF it is not uncommon for the terminal value to account for 75% or more of the
total company value, making the price highly sensitive to changes in the terminal growth rate. To ad-
dress this risk a conservative terminal growth rate between 2.0% and 3.0% for our simulations.
Key Risk #2: We also addressed model risk by not only using one model, but by weighting each mod-
el by our confidence in each model’s respective parameters for simulations.
Key Risk #3: Disney is unable to achieve sales growth rate assumptions consistent with expectations
and unable to find new net present value project.
Key Risk #4: Cost of Capital is not consistent with the future risk of Disney's cash flow.
Figure 13: Components of Cost of Equity
Risk free rate 10-yr 2.11%
Small Minus Big 2.0%
Beta SMB 0.3
High Minus Low -0.1%
Beta HML 1.06
Market Risk Premium 5.5
Beta MRP 1.07
FF3 Cost of Equity 8.5%
Source: Team estimates, market data
Weight of Debt 9.3%
Corp. Tax Rate 34.6%
After-tax Cost of Debt 2.1%
Weight of Equity 90.7%
10 Year Market Return 7.6%
10 Risk-free Rate
Market Risk Premium 5.5%
WACC 7.9%
Figure 14: Components of the WACC
Source: Team Estimates
10.0
18.3 18.5
14.9
15.9
22.6 22.1
2008 2009 2010 2011 2012 2013 2014
Source: Market Data
Figure 15: Historical PE Ratios

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FINANCIAL ANALYSIS
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS
Disney Gaining Popularity with Foreign Cultures: Disney has increased its total international revenues from 13.5% of total sales in 2000 to
nearly 25% of total sales in 2014. If we exclude Europe from our calculation of international sales, Asia Pacific and Latin America account for only
11.3% of total revenues in FY14. We expect this number to significantly increase as they have the most opportunity for growth, especially with the
current expansions in progress in Asia Pacific, most notably in Parks & Resorts and Studio Entertainment. The 10 year CAGR in international revenues
has been 5.98% through 2014. Over the last 5 years, Asia Pacific has seen an average revenue growth rate of 16.28%, followed by Latin America &
Other with 16% growth in revenues. European sales have plateaued in recent years, growing only 1.69% on average over the last 5 years, with FY14
growth at 5%. We still believe the European market has great growth potential, especially in the Parks & Resorts segment with Disneyland Paris being
the only regional park. On the North American front, we expect domestic operations to perform exceptionally well with current USD exchange rates and
low oil prices to spur travel and entertainment in FY15 and possibly into FY16.
Growing Operating Margins: DIS has been stably growing revenue over the last couple of decades,
while efficiently increasing operating margins. The 10 average revenue growth rate and CAGR have been
roughly 4.8% percent, with 5 year being roughly 6.2%. Operating margins in FY14 were 26.6%, while the
ten year average has been 21.2%. DIS has been significantly improving efficiency in operations by
increasing revenues and cutting costs were necessary. In forecasting our projections, the main aspect of
historical data we took away was seasonality trends. We do not believe that a 5 or 10 year average would be
necessarily indicative of future sales. While 5 historical items have mainly been positive, they do not entail
circumstances of a recessionary period, and we believe that a 10 year average is not representative of the
type of company DIS is today. We believe that the last 2 years of historical financial line items are the most
representative of how DIS will grow for up to the next 3 to 4 years, until we reach another economic
correction.
Disney’s Media Segment Remains Top Dog, but Other Segments are Approaching Quickly: Media Broadcasting has been the top dog in pulling
in the largest share of total revenues for over a decade, with it accounting for over 43% of revenues in FY14. However, we expect that number to
decrease in the coming years, with growing opportunities in Parks & Resorts and Studio Entertainment. The Walt Disney Company portfolio should
effectively become more diversified and even less risky. Consumer Products has promising growth, but may be squeezed in terms of percentage of total
revenues by the top 3 segments. Additionally, the Media segments growth has been slowing in recent years with rising operating costs, but is still the
clear cut bread-winner with Parks & Resorts coming in as the second biggest performer and accounting for 31% of total revenues in FY14.
Disney Share Buyback Binge Against The Dividend Yield: Disney’s share repurchase program, which was minimal to non-existent before 2005,
has exponentially grown to more than $6.5B in FY14, a 59.7% increase YOY. Total share repurchases from FY05 to FY14 equate to almost $42.5B. CEO
Iger states, “The capital investments we have been engaged in over the past 3 or 4 years, plus the deployment of capital in acquisitions, will yield
returns such that we will have the great problem of dealing with increasing cash flow as the years go by.” Over the last few years, Disney has issued
share repurchases exceeding 66%, 43%, 37%, and 71% of net operating cash flows in FY14,13,12, and 11, respectively. On the contrary, DIS dividend
yield has remained relatively low at roughly 1.2% compared to the Dow 30 average of 2.85%. Disney’s philosophy is have a payout ratio of 20%, how-
ever the company has the ability generously increase the yield without sacrificing capital investments, as it paid out only $1.5B in dividends in FY14.
Capital Structure: The Walt Disney Company operates in certain industries that are comparatively capital intensive, especially in the case of
Parks & Resorts, where maintenance and repair costs are also exuberantly large. So, while the company has been effectively lowering its
total-debt-to-total-equity structure from 49% in FY05 to 33% in FY14. While total debt has increased $2B in those 10 years, net debt has effectively
remained flat. The main driver in lowering debt-to-equity has been the substantial growth in shareholder’s equity, which has grown from 26.2B shares
outstanding in FY05 to approximately 45B shares outstanding in FY14. Disney uses broad sources of debt financing and debt issuance for a variety of
investments and operations (i.e. Shanghai Disney Resort under construction, was funded through 67% equity and 33% shareholder loans. (See appen-
dix VII for details on Euro Disney capital restructure)
Mergers & Acquisitions: The Walt Disney Company has had dozens of M&A deals in the last 2 decades. Out of the 12 major deals, two of them
have been sold off (Anaheim Angels & Miramax), 2 have relatively failed (Club Penguin & Playdom), and 6 of them have been absolute successes (Pixar,
Marvel, ABC). These acquisitions have been the biggest drivers in building the company to the phenomenal conglomerate it represents today. Just in the
4 short years since 2011, Disney’s market capitalization value has more than doubled from $70B to nearly $155B. We strongly believe that Disney will
continue its strong philosophy in acquiring and partnering with companies that allow it to create additional synergies. (refer to pages 26-32 of appen-
dix II).
Historical
Segment
Performance
10YR AVG
Revenue
Growth
10YR AVG
Operating
Margin
Media 6.10% 29.80%
Parks & Resorts 7.10% 14.80%
Studio Ent. -1.70% 11.20%
Consumer Prod. 6.20% 27.10%
Interactive (5YR) 14.00% -17.40%
Figure 16: Historical Segment Performance
Walt Disney - Use of Cash - 20 Years
Dividends
Share Buybacks
Interest
Debt Repayment
M&A
CapEx
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
$20B
$18B
$16B
$14B
$12B
$10B
$8B
$6B
$4B
$2B
-

9
INVESTMENT RISKS
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS
LR1 MR3
MR4 MR1
AR1 MR2
LOW MEDIUM HIGH
LOWMEDIUMHIGH
Probability
Impact
Figure 18. Risk Matrix
Source: Team Analysis
CR1
OR3 OR5 OR1
ME2 ME1
OR6 OR7 OR4 CR2 OR2
LOW MEDIUM HIGH
LOWMEDIUMHIGH
Probability
Impact
Figure 17. Risk Matrix
Individual Risk Analysis
Impact and likelihood of the following risks are presented in Figure 19. and 20.
Operational Risk | Changes in Consumer Preferences (OR 1)
Disney businesses create entertainment, travel or consumer products whose success depends substantially on
consumer tastes and preferences that change in often unpredictable ways. Therefore Disney’s success
depends on their ability to successfully predict and adapt to changing consumer tastes and preferences
outside as well as inside the U.S.
Operational Risk | LucasFilm Acquisition expected to cause short-term dilution in eps (OR2)
On December 21, 2012, the Company acquired Lucasfilm Ltd. LLC in a merger transaction in which the
Company distributed 37.1 million shares and paid $2.2 billion in cash. We expect that the merger will initially
result in lower earnings per share than Disney would have earned in the absence of the merger. There can be
no assurance that anticipated improvements in earnings per share will be realized.
Operational Risk | Seasonality could exacerbate negative impacts on Disney operations. (OR 3)
Each of Disney businesses is normally subject to seasonal variations. See appendix VII for individual segments
risk.
Operational Risk | Changes in Regulation. (OR4)
Disney’s broadcast networks and television stations are highly regulated, and each of their other businesses
is subject to a variety of U.S. and overseas regulations (See appendix VII). Changes in any of these regulations
or regulatory activities in any of these areas may require use to spend additional amounts to comply with
regulations, or may restrict our ability to offer products and services that are profitable.
Operational Risk | Expiration of Long-term Contracts. (OR5)
Disney enters into long-term contracts for both the acquisition and the distribution of media programming
and products, including contracts for the acquisition of programming rights for sporting events and other
programs, and contracts for the distribution of our programming tocontent distributors. As these contracts
expire, we must renew or renegotiate the contracts, and if we are unable to renew them on acceptable terms,
we may lose programming rights or distribution rights. Even if these contracts are renewed, the cost of
obtaining programming rights may increase (or increase revenue at slower rates than out historical
experience).
Operational Risk | Protection of electronically stored data. (OR6)
Disney maintains information necessary to conduct its business, including confidential and proprietary
information as well as personal information regarding its customers and employees, in digital form. Data
maintained in digital form is subject to the risk of intrusion, tampering and theft. If Disney’s data systems are
compromised, Disney may lose their ability to conduct their business
Operational Risk | Sustained Increase in Costs of Pension/other health & welfare benefits. (OR1)
With approximately 180,000 employees, Disney’s profitability is substantially affected by costs of pension
benefits and current and postretirement medical benefits. Disney may experience significant increases in
theses costs as a result of macro-economic factors, which are beyond their control, including increases in the
cost of health care. In addition, changes in investment returns and discount rates used to calculate pension
expense and related assets and liabilities can be volatile and may have an unfavorable impact on Disney’s
costs in some years. Continued upward pressure could reduce Disney’s Profitability.
Credit Risk | Downgrade of Credit Rating. (CR1)
Disney’s current credit rating is A2, considered to be upper-medium grade and subject to low credit risk, rated
by Moody's. A downgrade of this credit rating would result in higher borrowing costs and less access to the
bond market.
Credit Risk | Credit Risk Large Increase in Interest Rates. (CR2)
With current low interest rates, interest expenses remains low for Disney. A majority of the bonds they issue
are long term, allowing Disney to lock in low rates for a long time. However, Disney likes to issue callable
bonds in case rates lower and they decide to pay off the issues.
Macroeconomic Risk | Changes in U.S., Global, or Regional Economic Conditions.. (ME1)
A decline in economic activity in the U.S. and other regions of the world in which we do business can adversely
affect demand for any of our businesses, thus reducing our revenue and earnings. The most recent decline in
economic conditions reduced spending at Disney parks and resorts, purchase of and prices for advertising on
broadcast and cable networks and owned stations, performance of Disney home entertainment releases, and
purchases of Company-branded consumer products, and similar impacts can be expected should conditions
recur.

10
INVESTMENT RISKS
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS
Macroeconomic Risk | Unfavorable Currency Exchange Rates. (ME2)
Disney operates in many countries around the world and therefore is exposed to foreign currency risks. DIS
hedges these risks by entering into futures and options contracts to protect the value of existing foreign cur-
rency assets, liabilities, and commitments. The hedges in currency transaction generally do not exceed 4 years.
Principal currencies hedged include JPY, CAD, GBP, and the EUR. In FY14 the company lost $143m in currency
transactions from Venezuela, resulting in about $0.05 per share.
Legal Risks | Protection of Intellectual Property. (LR1)
The success of Disney’s businesses is highly dependent on the existence and maintenance of intellectual
property rights in the entertainment products and services Disney creates. The value of Disney’s intellectual
property rights is dependent on the scope and duration of their rights as defined by the applicable laws in the
U.S. and abroad and the manner in which those laws are construed. If those laws are drafted or interpreted in
ways that limit the extent or duration of Disney’s rights, or if existing laws are changed, their ability to
generate revenue from their intellectual property may decrease, or the cost of obtaining and maintaining
rights may increase. The unauthorized use of Disney intellectual property rights may increase the cost of
protecting these rights or reduce Disney’s revenues.
Market Risks | Changes in Business Environment. (LR2)
Changes in Disney business strategy or restructuring of Disney businesses may increase costs or otherwise
affect the profitability of their businesses. As changes in Disney’s business environment occur they may need
to adjust their business strategies to meet these changes or may otherwise find it necessary to restructure
operations or particular businesses or assets. In addition, external events including acceptance of Disney
theatrical offerings and changes in macroeconomic conditions may impair the value of Disney’s assets. When
these changes or events occur, Disney may incur costs to change our business strategy and may need to write
down the value of assets.
Market Risks |Changes in Travel and Tourism. (MR1)
Demand for Parks and Resorts is highly dependent on the environment of travel and tourism. The
environment for travel and tourism can be significantly adversely affected in the US, globally, or in specific
regions, as a result of; adverse weather, natural disasters, health concerns, international political or military
developments, and terrorist attacks.
Market Risks |Changes in Technology and consumption Patterns. (MR2)
The media entertainment and internet businesses in which Disney participates increasingly depend on their
ability to successfully adapt to shifting patterns of content consumption through the adoption and exploitation
of new technologies. New technologies affect the demand for Disney products, the manner in which their
products are distributed to consumers, the sources and nature of competing content offerings , the time and
manner in which consumers acquire and view some of their entertainment products and the options available
to advertisers for reaching their desired audiences. This trend has disrupted and challenged the business
model for certain traditional forms of distribution, as evidenced by the industry-wide decline in ratings for
broadcast television, the reduction in demand for home entertainment sales of theatrical content and the
development of alternative distribution channels for broadcast and cable programming. As a result, the
income from Disney’s operations may decrease or increase at slower rates than historical experience or the
expectations when investments are made in products.
Market Risks | Increased Competitive Pressure . (MR3)
Disney faces substantial competition in each of their businesses from alternative providers of the products
and services we offer and from other forms of entertainment, lodging, tourism, and recreational activities. The
Company also must compete to obtain human resources, programming and other resources we require in
operating our businesses. Competition for the acquisition of resources can increase the cost of producing our
products and services. Competition may also reduce, or limit growth in, prices for our products and services,
including the advertising rates. And subscription fees at our media networks, parks and resorts admissions
and room rates, and prices for consumer products from which we derive license revenues.
Accounting Risk | Earnings Persistence. (AR1)
Sloan (1996) documents the accrual component of earnings (Net Income less Cash Flows from Operations) is
less persistent than the cash component of earnings. We examined the percent accruals of Disney based on
Hazfalla, Lundholm, and Van Winkle (2011), calculated as ((Net Income less Cash Flows from Operations)/
Net Income), and find that Disney’s percent accrual for fiscal year 2014 is -.22, which places it in the 6th decile
of all firms (see Table 2 Panel A in Hazfalla, Lundholm, and Van Winkle 2011). This indicates Disney’s accruals
are moderate and are not at risk of extreme reversal.
Corporate Governance and Social Responsibility | In 2013, Disney was named the number one most
reputable company by Reputations Institutes, a private consulting firm., and one of Fortune’s top 10 Most
Admired Companies. Forbes published Reputation Institutes survey of 55,000 consumers in 15 countries
which identified companies with the strongest CSR (Corporate Social Responsibility) reputation. In the survey
consumers evaluated 100 of the world’s most reputable companies in three categories— citizenship, govern-
ance and workplace. The Walt Disney Company along with Microsoft, Google and BMW, were recognized as
the most socially responsible companies.
Risks Mitigating Factors
Operational Risk
Changes in
Consumer
Preferences
LucasFilm EPS
Dilution
Seasonality
Changes in
Regulation
Expiration of
Long-term
Contracts.
Protection of
electronic
data
Increase in
Pension
Continued
innovation in
product space.
Focus on increased
Earnings.
Increased Liquidity
Mindful on int.
regulation.
Increase negotiation
powers/negotiate
early.
Enhance security.
Decrease Discount
Market Risk
Changes in
Business
Environment
Changes in
Travel and
Tourism
Changes in
Technology
Increased
Competitive
Pressure
Focus on new
product
development.
Dynamic Strategy.
R&D investments.
M&A activity.
Legal Risk
Protection of
Intellectual
Property
High expenditures
on IP protection
Credit Risk
Downgrade of
Credit Rating
Large interest
rate hike
Reduce debt.
Int. rate swap
contracts.
Macroeconomic Risk
Changes in
Economic
Conditions
Unfavorable
Currency
Exchange
Increase Liquidity.
Forward Contracts.
Figure 19: Risk and Mitigation Strategies
Team Disclosure:
We expect market returns as measured by the S&P500 to be approximately 10% over the next year. We assign an
OUTPERFORM if an investment is expected to have returns greater than the market. A MARKET PERFORM if returns
are positive but less than the market return. A UNDERERFORM if returns are expected to negative.

11
Section I: DIS Financial Statements
Section II: Investors
Section III: The History of Disney
Timeline
Global Locations
APPENDIX I:
INTRODUCTION
APPENDIX 1: INTRODUCTION
Appendix
Appendix
I
INTRO BUSINESS INDUSTRY INVESTMENT VALUATION FINANCIAL INVESTMENT

12
SECTION II
Appendix
I
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS

13
Disney Timeline for Major Events
1923 Disney is born as Disney Brothers Cartoon Studio
1926 Disney Brother’s is renamed Walt Disney Studio
1928 Steamboat Willie, the first cartoon to feature Mickey Mouse and to ever feature synchronized sound, premiers in NY
1929 Walt Disney Studios is reorganized as a corporation under the name of Walt Disney Productions, Limited with a
merchandising division (Walt Disney Enterprises) and two subsidiaries (Disney Film Recording Company, and Limited
and Liled Realty and Investment Company for real estate holdings)
1932 Disney signs an exclusive contract with Technicolor to produce cartoons in color
1937 Snow White and the Seven Dwarfs, the first feature-length animated film, premiers in 1937
1940 Walt Disney Productions IPO
1950 Walt Disney Productions and The Coca-Cola Company team up for Disney’s first television production, An Hour in
Wonderland, and NBC television network special
1954 ABC network launched Disney’s first regular television series, Disneyland
1955 Disneyland Opens to the general public in Anaheim, California
1965 Disney acquires WED Enterprises, the theme park design and architectural group that helped Disneyland and
1966 Walt Disney passes away; brother Roy Disney takes over as chairman, CEO, and president of the company
1971 Walt Disney World opens to the public in Orlando, Florida
1971 Roy Disney passes away; control of the company is passed on to Donn Tatum, Card Walker; and Ron Miller
1979 Disney collaborates with another studio for the first time and enters a joint venture with Paramount Pictures
1980 Company launches Walt Disney Home Video to capitalize on the newly emerging videocassette market
1982 Disney family sold naming rights and rail-based attractions to the Disney Studio for 818,461 shares (then 42.6 million)
1982 A second Walt Disney World theme park, EPCOT Center, opens in Orlando
1983 The Disney Channel debuted on subscription-level cable systems nationwide
1983 Disney Partners with Oriental Land Company to build Tokyo Disneyland, the first Disney theme park outside of the U.S.
1984 CEO Ron Miller creates Touchstone Pictures as a brand for the company to release films directed towards more
mature audiences
1984 Michael Eisner from Paramount Pictures is named CEO and Frank Wells from Warner Bros. is named president
1985 Richard Rich leaves Disney to create his own studio
1986 Disney teams up with Studio Ghilbli to distribute films internationally
1987 First Disney Store opens in Glendale, California
1987 The Euro Disney project (now Disneyland Paris) begins when the company and the French government sign an
agreement for the creation of the first Disney Resort in Europe
1988 Walt Disney Computer Software is founded as a video game division for the company
1990 Negotiations for a merger between The Jim Henson Company (known for The Muppets) are extinguished due to the
passing of Jim Henson
SECTION III
Appendix
I
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS

14
DISNEY TIMELINE of MAJOR EVENTS
1990 Hollywood Pictures is created to produce movies aimed at more mature audiences
1992 The company creates the NHL team the Mighty Dicks of Anaheim following the release of the film The Mighty Ducks
1992 Disney begins publishing with Hyperion books and distributing adult music with Hollywood Records
1993 The company acquires independent film director Miramax Films
1994 President Frank Wells dies in a helicopter crash, and Disney Studio Chairman Jeffrey Katzenberg resigns to form
DreamWorks
1994 Plans for Disney’s America, a theme park in Virginia are cancelled
1995 Disney purchases DIC Entertainment and acquires the rights to its shows
1996 Michael Ovitz resigns as president
1997 The company takes control of the MLB franchise the California Angels, and rename the team the Anaheim Angels for
consistency with the hockey team and to attract more visitors to Disneyland
1998 Disney and Hong Kong Government announce plans for a resort in Hong Kong
2000 Robert Iger becomes president
2000 Disney-owned television channels (including ABC stations) are briefly pulled from Time Warner Cable over carriage fees
2001 The company purchases Fox Family Network, including Saban Entertainment, changes the network name to ABC Family
2002 Miramax acquires rights to the Pokémon movies
2002 Disney partners with video game company Square to release the game Kingdom Hearts
2003 Company sells the Angels
2004 Comcast unsuccessfully attempts to make a $66 billion bid for the company
2004 The Disney Store chain is sold and licenses to The Children’s Place
2004 Disney purchases the Jim Henson Company (excluding Sesame Street and Fraggle Rock characters) for 75 million
2005 The Mighty Ducks are sold to Henry Samueli of Broadcom
2005 Bob Iger replaces Michael Eisner as CEO
2005 Disney Magazine ceases publication
2006 The company acquires Pixar Animation Studios for $7 billion
2007 New Horizon Interactive, well known for the game Club Penguin, is acquired by Disney
2007 ABC Radio Networks is sold to Citadel Broadcasting
2008 The Disney Store chain reacquired from The Children’s Place
2009 Disney acquires marvel Entertainment and its properties
2010 Disney sells the Power Rangers franchise to Saban Brands for $100 million and sells Miramax Films to Filmyard
Holdings
2011 Plans to open the Shanghai Disney Resort in 2015 are announced and estimated to cost $4.4 billion
2012 The company acquires Lucasfilm from George Lucas for $4.06 billion
2012 The company expands its market further into India and Asia through the acquisition of UTV Software Communications
2014 Disney acquired Maker Studios for $500 million
SECTION III
Appendix
I
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS

15
Global Locations
Media Networks Parks & Resorts Studio Entertainment
North America
 United States
 Canada
Latin America
 Brazil
 Disney Latino (Argentina, Guatema-
la, Costa Rica, Dominican Republic,
Nicaragua, Honduras, El Salvador,
Mexico, Colombia, Venezuela, Chile,
Peru, Uruguay)
India
China
North America
 United States
China
 Hong Kong Disneyland, Shanghai
Disney Resorts
North America
 United States
 Canada
Latin America
 Brazil
 Disney Latino (Argentina, Guate-
mala, Costa Rica, Dominican Re-
public, Nicaragua, Honduras, El
Salvador, Mexico, Colombia, Ven-
ezuela, Chile, Peru, Uruguay)
India
China
Consumer Products Interactive
North America (>200 store locations)
 United States
 Canada
Latin America
 Brazil
 Disney Latino (Argentina, Guatemala, Costa Rica,
Dominican Republic, Nicaragua, Honduras, El Salvador,
Mexico, Colombia, Venezuela, Chile, Peru, Uruguay)
North America
 United States
 Canada
Latin America
 Brazil
 Disney Latino (Argentina, Guatemala, Costa Rica,
Dominican Republic, Nicaragua, Honduras, El Salvador,
Mexico, Colombia, Venezuela, Chile, Peru, Uruguay)
SECTION III
Appendix
I
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS

16
APPENDIX II:
BUSINESS DESCRIPTION
FROM CFA EQUITY REPORTING ESSENTIALS
Section I: Detailed Description of Disney Products and Services
Segment Descriptions
Revenues and Costs from Services and Products
Strategic Pillars
Management
Section II: Acquisitions: History and Outlook
Acquisitions—The New Disney Way?
Studio Entertainment Trend—Acquiring Strong Brands
Potential Acquisitions for Disney
APPENDIX II: BUSINESS DESCRIPTION
Appendix
II
INTRO BUSINESS
DESCRIPTION
INDUSTRY
OVERVIEW
INVESTMENT
SUMMARY
VALUATION FINANCIAL
ANALYSIS
INVESTMENT
RISKS

17
Segment Descriptions (Source: Disney FY2014 10K)
The Walt Disney Company, together with its subsidiaries, is a diversified worldwide entertainment company with operations in five business segments:
Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products and Interactive. On May 7, 2014, the Company acquired Maker Studios,
Inc. (Maker), a leading network of online video content. See Note 3 to the Consolidated Financial Statements. Maker results are included primarily in in
Media Networks and Studio Entertainment segments. For convenience, the terms “Company” and “we” are used to refer collectively to the parent com-
pany and the subsidiaries through which our various businesses are actually conducted. Information on the Company’s revenues, segment operating
income and identifiable assets appears in Note 1 to the Consolidated Financial Statements included in Item 8 hereof. The Company employed approxi-
mately 180,000people as of September 27, 2014.
MEDIA NETWORKS
The Media Networks segment includes broadcast and cable television networks, television production operations, television distribution, domestic
television stations and radio networks and stations. The businesses in the Media Networks segment generate revenue from fees charged to cable, satel-
lite and telecommunications service providers (Multi-channel Video Programming Distributors or MVPDs) and television stations affiliated with our
domestic broadcast television network, from the sale to advertisers of time in programs for commercial announcements and from other sources such
as the sale and distribution of television programming. Significant operating expenses include programming and production costs, technical support
costs, distribution costs and operating labor.
Cable Networks
Our cable networks include ESPN, the Disney Channels and ABC Family. We also operate the UTV/Bindass networks in India. The cable networks group
produces its own programs or acquires rights from third-parties to air programs on our networks. The Company also has interests in joint ventures
that operate cable and broadcast programming services and are accounted for under the equity method of accounting. Cable networks derive the ma-
jority of their revenues from fees charged to MVPDs for the right to deliver our programming to their customers (Subscribers) and, for certain net-
works (primarily ESPN and ABC Family), the sale to advertisers of time in network programs for commercial announcements. Generally, the Company’s
cable networks operate under multi-year agreements with MVPDs that include contractually determined fees. The amounts that we can charge to
MVPDs for our cable network services are largely dependent on the quality and quantity of programming that we can provide and the competitive
market. The ability to sell time for commercial announcements and the rates received are primarily dependent on the size and nature of the audience
that the network can deliver to the advertiser as well as overall advertiser demand. We also sell programming developed by our cable networks world-
wide in pay and syndication television markets and in physical (DVD and Blu-ray) and electronic formats
PARKS AND RESORTS
The Company owns and operates the Walt Disney World Resort in Florida, the Disneyland Resort in California, Aulani, a Disney Resort & Spa in Hawaii,
the Disney Vacation Club, the Disney Cruise Line and Adventures by Disney. The Company manages and has effective ownership interests as of Septem-
ber 27, 2014 of 51% in Disneyland Paris, 48% in Hong Kong Disneyland Resort and 43% in Shanghai Disney Resort, each of which is consolidated in
our financial statements. The Company also licenses the operations of the Tokyo Disney Resort in Japan. The Company’s Walt Disney Imagineering unit
designs and develops new theme park concepts and attractions as well as resort properties.
The businesses in the Parks and Resorts segment generate revenues predominately from the sale of admissions to theme parks, sales of food, beverage
and merchandise, charges for room nights at hotels, sales of cruise vacation packages, and sales and rentals of vacation club properties. Significant
costs include labor, depreciation, costs of merchandise, food and beverage sold, marketing and sales expense, infrastructure costs and cost of vacation
club units. Infrastructure costs include information systems expense, repairs and maintenance, utilities, property taxes, insurance and transportation.
STUDIO ENTERTAINMENT
The Studio Entertainment segment produces and acquires live-action and animated motion pictures, direct-to-video content, musical recordings and
live stage plays. The businesses in the Studio Entertainment segment generate revenue from the distribution of films in the theatrical, home entertain-
ment and television markets, the distribution of recorded music, stage play ticket sales and licensing revenues from live entertainment events. Signifi-
cant operating expenses include film cost amortization, which consists of production cost and participations and residuals expense amortization, distri-
bution expenses and costs of sales. The Company distributes films primarily under the Walt Disney Pictures, Pixar, Marvel, Touchstone and Lucasfilm
banners. The Company produces and distributes Indian movies through its UTVbanner. In August 2009, the Company entered into an agreement with
DreamWorks Studios (DreamWorks) to distribute live-action motion pictures produced by DreamWorks for seven years under the Touchstone Pic-
tures banner for which the Company receives a distribution fee. Under this agreement, the Company has distributed eleven films to date. As part of the
agreement, the Company provided loans to DreamWorks, which as of September 27, 2014 totaled $156 million.
There is an additional $90 million available to DreamWorks
CONSUMER PRODUCTS
The Consumer Products segment engages with licensees, publishers and retailers throughout the world to design, develop, publish, promote and sell a
wide variety of products based on the Company’s intellectual property through its Merchandise Licensing, Publishing and Retail businesses. In addition
to using the Company’s film and television properties, Consumer Products also develops its own intellectual property, which can be used across the
Company’s businesses.
The Consumer Products segment generates revenue from:
 Licensing characters from our film, television and other properties to third parties for use on consumer merchandise
 Wholesale revenue from publishing children’s books and magazines and comic books
 Sales of merchandise at our retail stores and wholesale business
 Fees charged at our English language learning centers; and sales of merchandise at internet shopping sites
Significant costs include costs of goods sold and distribution expenses, operating labor and retail occupancy costs.
INTERACTIVE
The Interactive segment creates and delivers branded entertainment and lifestyle content across interactive media platforms. Interactive primary op-
erations include the production and global distribution of multi-platform games, the licensing of content for games and mobile devices, website man-
agement and design for other Company businesses and the development of branded online services. The Interactive segment generates revenue from:
 The sale of multi-platform games to retailers and distributors and through micro transactions and subscription fees
 Licensing content to third-party game publishers and mobile phone providers
 Online advertising and sponsorships
 Significant costs include product development, cost of goods sold, marketing expenses and distribution expenses
SECTION I
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II
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DESCRIPTION
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18
Revenues and Costs from Services and Products (10K Cont.)
The Company generates revenue from the sale of both services and tangible products and revenues and operating
costs are classified under these two categories in the Consolidated Statements of Income. Certain costs related to both
the sale of services and tangible products are not specifically allocated between the service or tangible product reve-
nue streams but are attributed to the principal revenue stream. The cost of services and tangible products exclude
depreciation and amortization.
Significant service revenues include:
• Affiliate fees
• Advertising revenues
• Revenue from the licensing and distribution of film and television properties
• Admissions to our theme parks, charges for room nights at hotels and sales of cruise vacation packages
• Licensing of intellectual property in our consumer products and publishing businesses
Significant operating costs related to the sale of services include:
• Amortization of programming, production, participations and residuals costs
• Distribution costs
• Operating labor
• Facilities and infrastructure costs
Significant tangible product revenues include:
• The sale of food, beverage and merchandise at our retail locations
• The sale of DVDs, Blu-ray discs and video game discs and accessories
• The sale of books and magazines
Significant operating costs related to the sale of tangible products include:
• Costs of goods sold
• Amortization of programming, production, participations and residuals costs
• Distribution costs
• Operating labor
• Retail occupancy costs
• Game development costs
SECTION I
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II
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19
Strategic Pillar I – Generating the best creative content possible
Disney is constantly cultivating new content and striving utilize its full potential. They are known for the innate ability
to translate this content into new products, services and business solutions. This is done from the belief that brilliant
ideas can come from anywhere and can ultimately lead to brilliant results. Emphasis is placed on individual creativity
that is ultimately integrated into detailed business process. Disney even created the Disney Institute, where,
“individuals learn the important connection between effective leadership and a culture designed to foster continuous
creativity and innovation.”
Strategic Pillar II—Fostering innovation and utilizing the latest technology
Disney Research was launched in 2008 as an informal
network of research labs that collaborate closely with
academic institutions such as Carnegie Mellon University
and the Swiss Federal Institute of Technology Zurich
(ETH). Disney Research works on a broad range of com-
mercially important challenges. Current research areas
include:
· Computer graphics
· Video processing
· Computer Vision
· Robotics
· Wireless communication and mobile computing
· Human-computer interaction
· Behavioral Sciences
· Materials research
· Machine Learning & Optimization
Strategic Pillar III - Expanding into new markets around the world
Disney has an extraordinary opportunity to expand overseas. With new and emerging markets as well as untouched
global meccas, Robert Iger is looking to aggressively expand. Roughly 25% of Disney’s revenues come from abroad,
leaving great potential. Growth would most likely originate in the Latin American and Asia Pacific markets since they
are less developed compared to European markets. International markets would provide the chance to extensively dis-
tribute content throughout the five business segments.
SECTION I
Appendix
II
Disney’s Global Presence. Source: Company Website.
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20
SECTION I
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II
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DESCRIPTION
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OVERVIEW
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SUMMARY
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RISKS
Source: 2015 DIS Proxy Statement
Annual Board retainer $100,0001
Annual committee retainer (except Executive
Committee)2
$10,000
Annual committee chair retainer (Governance
and Nominating Committee
only)3
$15,000
Annual committee chair retainer (Audit com-
mittee and Compensation Committee only)
$20,000
Annual deferred stock unit grant $170,000
Annual retainer for independent Lead Director4 $50,000
The elements of annual Director compensation for fiscal 2014 are as follows:
1 Effective October 1, 204, the Board of Directors increased the annual Board retainer to $105,000 and the annual deferred stock unit grant to
$180,000.
2 Per committee.
3 This is in addition to the annual committee retainer the Director receives for serving on the committee.
4 This is in addition to the annual Board retainer, committee fees and the annual deferred unit grant.
Salary Performance-Based Bonus Equity Awards
Calendar
2014
Salary Target
Financial
Performance
Factor
Other
Performance
Award
Amount
Dollar
Value
Target
Performance
Units***
Time-
Based Options***
Robert A. Iger $2,500,000 $12,000,000 186% 200% $22,810,000 $16,678,730 114,884 — 435,220
James A. Rasulo $1,770,000 $3,540,000 186% 200% $6,730,000 $5,500,000 22,731 22,731 114,815
Alan N. Braveman $1,400,000 $2,800,000 186% 200% $5,325,000 $3,000,000 12,399 12,399 62,627
Kevin A. Mayer $935,000 $1,168.750 186% 200% $2,222,000 $2,000,000 8,266 8,266 41,751
M. Jayne Parker $730,000 $912,500 186% 200% $1,735,000 $2,000,000 8,266 8,266 41,751
* Multiplied by 70% of the target amount.
** Multiplied by 30% of the target amount.
*** The number of restricted stock units and options was calculated from the dollar value of the award as described in the table on page 32.
Name Shares1,2 Percent of Class
Robert A. Iger 1,342,414 *
James A. Rasulo 191,061 *
Alan N. Braveman 228,389 *
Kevin A. Mayer 17,067 *
M. Jayne Parker 14,094 *
* Less than 1% of outstanding shares
1 The number of shares shown includes shares that are individually or jointly owned, as well as shares over which the individual has either sole
or shared investment or voting authority. Some Directors and executive officers disclaim beneficial ownership of some of the shares included in the
table, as indicated below:
 Robert A. Iger—64,356 shares held in trusts and by spouse
 Kevin A. Mayer—65 shares held for the benefit of members of his family
2 For executive officers, the number of shares listed includes interest in shares held in Company savings and investment plants as of January 12, 2015:
Mr. Iger —19,176 shares; Mr. Rasulo —23,791; Mr. Braveman — 10,637 shares; Ms. Parker — 13,107 shares; and all executive officers as a group —
70,172 shares.
Management & Governance

21
Name Position Held
Since
Other Positions/Affiliates
Robert A. Iger Chairman and CEO 2005 Chief Operating Officer Disney 2000-2005
Chairman ABC Group 1996
1999 President Walt Disney International
Joined ABC 1974
Apple Board of Directors 2011
US-China Business Council Board Member
Board of September 11 Museum and Memorial
Appointed to President’s Export Council by Obama 2010
Member of Academy of Arts and Sciences 2012
Graduate of Ithica College
Andy Bird Chairman Walt Dis-
ney International
2004 Senior Vice President Time Warner and General Manager of Tuner Entertain-
ment Networks 1994-2004
President of TBS International 2000
Radio and Television roles in Europe 1989-1994
Operator for Unique Television 1992
Show Producer for Piccadilly Radio
Virgin Broadcasting Group
Bachelors of Arts in English Language and Literature from University of New-
castle
Alan Braverman Senior Executive
Vice President Gen-
eral Counsel and
Secretary
2003 Executive Vice President and General Counsel ABC 1994
Vice President and Department General Counsel ABC 1993
Partner at Wilner, Cutler and Pickering 1983
B.A. from Brandeis University
J.D. from Duquesne University
Ronald Iden Senior Vice Presi-
dent Global Security
2004 California Office of Homeland Security
25 years with FBI, lead FBI Los Angeles Field Office as Assistant Director
Special Agent, Los Angeles Office, investigating terrorism, civil rights, foreign
counter-intelligence, financial crimes
Deputy Assistant Director FBI Information Resources Division
SECTION I
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II
Management
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22
Name Position Held
Since
Chief of Information Resources Division Strategic Planning
Chief of FBI Public Corruption Unit
Bachelor of Arts from University of Illinois
Masters of Public Administration from Illinois Institute of
Kevin Meyer Executive Vice President Corpo-
rate Strategy and Business Devel-
opment
2005 L.E.K. Consulting Partner and Head of Global Media and Enterertainment
Practive
Chairman and CEO of Clear Channel Interactive
Manager Disney Strategic Planning 1993
Harvard MBA 1990
M.S.E.E. San Diego State University
B.S.M.E. from MIT
Christine M. McCarthy Executive Vice President Corpo-
rate Real Estate, Alliances and
Treasurer
2001 Executive Vice President and Chief Financial Officer of Imperial Bancorp
1997-2000
Various Finance Positions at First Interstate Bancorp 1981-1996
Executive Vice President of Finance at First Interstate 1993
Disney Board FM Global 2010
Trustee WEstrighe School for Girls
Mentor, National Math and Science Initiative Stem Program
Former Board Member, Phoenix House
Treasure and Director of Alumnae Association of Smith College
B.A. Biological Sciences from Smith College
MBA from UCLA Anderson School of Business
Zenia Mucha Executive Vice President and Chief
Communications Officer
2001 Senior Vice President Communications for ABC Broadcast Group and
ABC Television Network, 2001
Director of Communications for New York State Governor, George Pataki
Communications Director for U.S. Senator Alfonse D’Amato
Matrix Award Recipient 2012
“100 Most Important In House Communicators”
SECTION I
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II
Management
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DESCRIPTION
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23
Name Position Held
Since
Jayne Parker Executive Vice President and
Chief Human Resources Officer
2009 Senior Vice President of Human Resources, Diversity and Inclusion for Walt Disney Parks
and Resorts Worldwide
Joined Disney 1988
Manager and Director for Disney Univeristy 1988
Director and Vice PRsident of Organization Improvement
Vice President of Organziation and Professional Development
Consultant Wilson Learning Corporation
MBA from University of Central Florida
Holds degrees in Communications and Education
Masters in Instruction Design and Technology
Jay Rasulo Senior Executive Vice President
and Chief Financial Officer
2010 Head of Disney Parks and Resorts 2002
Chairman of Travel and Industry Association of America 2006 and 2007
Travel Industry Hall of Leaders 2008
Board of Directors Los Angeles Philharmonic Association
Board of Governors Boys and Girls Club
Disney Director of Strategic Planning and Development 1986
Disney Senior Vice President of Corporate Alliances
Disney Regional Entertainment
President Euro Disney
Chairman and CEO Euro Disney
Economics Degree from Columbia University
MBA in Economics from University of Chicago
Brent Wood-
ford
Senior Vice President Planning
and Control
2005 Vice President Controller for YumBrands 2003
Ten Years with Pepsico as Controller
Holds a CPA and CFA Charter
Member Financial Accounting Standards Advisory Council
B.A. in Accounting from Michigan State
MBA from St. Louis University
SECTION I:
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II
Management
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DESCRIPTION
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24
Name Position Held
Since
Bob Chapek President Consumer Prod-
ucts
2011 President of Distribution for Walt Disney Studios 2009-2011
President Walt Disney Studios Home Entertainment
Prior to Disney practiced brand management in the packaged
goods industry with H.J. Heinz Corporation
Advertising with J. Walker Thompson
Alan F. Horn Chairman The Walt Dis-
ney Studios
2012 President and COO of Warner Brothers Entertainment
Co-Founded Castle Rock Entertainment 1987
Chairman and CEO Castle Rock Entertainment
President and COO for 20th Century Fox Film Corporation
Chairman and CEO of Embassy Communications Fox Film Corpo-
ration
Co-Founder of Environmental Media Assocaition
Vice Chairman of Natural Resources Defense Council
Member of Academy of Motion Picture Arts and Sciences
Member of Television Arts and Sciences
American Film Institute Board of Directors
MBA Harvard Business School
James Pitaro President Disney Interac-
tive
Vice President of Yahoo Media
Vice President and General Manager of Yahoo Sports
Vice President and Head of Business Affairs for Yahoo Music
Vice President of Business Affairs for Launch Media Inc.
Law Practice, Variety of Firms
Bachelor of Science in Economics from Cornell University
J.D. from St. Johns Law School
SECTION I:
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II
Management
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DESCRIPTION
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25
Name Position Held
Since
John Skip-
per
President ESPN and Co-
Chairman Disney Media
Networks
2012 Vice President Content 2005
Executive Vice President Advertising and Sales and ESPN Networks
2004
Executive Vice President ESPN Magazine 2003
Senior Vice President and General Manager ESPN Magazine and
ESPN.com
Senior Vice President Disney Publishing Group
Vice President Disney Magazine Publishing 1990
Straight Arrow Publishing 1979
Thomas
Staggs
Chairman Walt Disney
Parks and Resorts
2010 Senior Executive Vice President CFO Disney
Manger Strategic Planning 1990
Chief Financial Officer 1998
Investment Banking Morgan Stanley
Bachelors in Business from University of Minnesota
MBA from Stanford
Anne
Sweeney
Co-Chair Disney Media
Networks, President Dis-
ney/ABC Television Group
2005 ABC Cable Networks Group and Disney Channel Worldwide 2004
President Disney Channel 1996
Executive Vice President of Disney/ABC Cable Network
CEO FX Networks 1993
“50 Most Powerful Women in Business”
Cable Centers Hall of Fame 2007
1994 Cable and Telecom Executive of the Year
1997 Cable and Telecom Woman of the Year
B.A. Degree College of New Rochelle
Ed.M. Harvard University
SECTION I:
Appendix
II
Management
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DESCRIPTION
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26
Acquisitions—The new Disney Way?
Year Acquisition
1993 Miramax Films
1996 Capital Cities/ABC (including ESPN)
1996 The Anaheim Angels
2001 Fox Family Network (ABC Family)
2001 Saban Entertainment (Power Rangers
Series)
2004 The Muppets (Excluding Sesame Street)
2006 Pixar
2007 New Horizon Interactive (Club Penguin)
2009 Marvel Entertainment
2010 Playdom
2012 Lucasfilm
The “Disney Way” refers to the handbook that employees receive upon working at Disney. The handbook
contains the codes and values to which employees should act by. But perhaps this term better applies to Dis-
ney’s history of taking on large acquisitions and turning them into successes. The most recent blockbuster
deal came with the acquisition of Lucasfilm for a mere $4 billion dollars. Take that into account with the pur-
chase of Marvel and you have a solid movie producing company by itself. Though not all of Disney’s acquisi-
tions have been big hits. The deal with New Horizon Interactive has largely failed to meet expectations and
the large buyout of Playdom has yet to prove worthy in a lagging social games market. Only two of these ac-
quisitions resulted in a sale: The Angels (baseball team) and Miramax Films.
Approximately 80% of the market expects domestic M&A to increase over the next 12 months. Most of the
respondents anticipate their own planned growth to come from acquisitions. Middle market (50M – 250 M)
acquisitions are expected to rise two fold in the next year. Activity for deals over half a billion have dropped
dramatically. Despite these positive numbers, only about a third of US companies said they would actually
follow through with a deal. This is a modest number but it is still an increase from last year. Of these planned
deals, a majority are expected to “transformative” rather than “incremental.” This means acquisitions are
being done that will dramatically change the environment for businesses. Compared to global companies, US
companies are in the evaluation phase of M&A whereas the latter are still considering proposed deals in
boardrooms.
SECTION II
Appendix
II
Acquisitions: History and Outlook
INTRO BUSINESS
DESCRIPTION
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27
Studio Entertainment Trend: Acquiring Strong Brands
Source: StasticBrain.com
SECTION II
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II
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28
The Company acquired Pixar Animation Studios for $7.4 billion in 2006. Pixar has produced four-
teen feature films since 1995. All fourteen films have received CinemaScore ratings of at least “A-”,
indicating positive reception by audiences, and are all among the 50 highest-grossing animated
films of all time. The studio has earned 27 Academy Awards, 7 Golden Globes, and 11 Grammy’s,
among many other awards.
In a way, this deal saved Disney animation. Plagued by a streak of under performing movies, the
deal revitalized the animation segment of Disney’s business. Rivals such as DreamWorks Anima-
tion and Fox were surpassing Disney at the box office as had Pixar prior to the deal. Pixar has con-
tinued to release box office hits, most notably Toy Story 3.
The main success from the deal with Pixar was a rejuvenated feeling at Walt Disney Animation.
For the second year in a row, this division, and not Pixar, has released the most successful film.
Competition in the Animation market is intense. In addition to the major players, new companies
are coming along that are producing movies for far less which takes away the pressure at the box
office. Overall it likely that without the acquisition of Pixar, Disney animation would be obsolete
(or on its way to be) by now.
SECTION II
Appendix
II
Acquisition of Pixar
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DESCRIPTION
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29
Prior to Disney’s acquisition of Marvel in
2010, Marvel had agreements for third-
party studios to distribute Marvel pro-
duced films. Under these arrangements,
Marvel incurred the cost to produce the
films and pays the third-party studio a dis-
tribution fee. In 2011, Disney purchased to
distribution rights for The Avengers and
Iron Man 3 from a third-party studio, and
agreed to pay fees to that studio based on
the performance of those films. In 2013, the
Company purchased the remaining distri-
bution rights for Iron Man, Iron Man 2, Thor, and Captain America: The First Avenger, all of which have been released.
Going forward, Disney will distribute all Marvel produced films, with the exception of the Incredible Hulk. Marvel also
used to license rights to third-party studios to produce and distribute films based on certain Marvel properties. Under
these agreements, the third-party now incurs the cost to produce and distribute the films, and pays Disney a licensing
fee. The Company entered into an agreement with Sony pictures to control and fully benefit from all Spiderman mer-
chandising activity, while Sony Pictures will continue to produce and distribute Spiderman films.
In 2009 Marvel was acquired for roughly $4 billion dollars. This gave the Walt Disney Company access to over
5,000 characters who include: Spider-Man, X-Men, Thor, Iron man and the Fantastic Four. Disney paid a 29 percent pre-
mium for Marvel but CEO Iger was quoted as saying, “We paid a price that reflects the value they’ve created and the value
we can create as one company. It’s a full price but it’s a fair price.” Disney will be able to plug Marvel characters into
their vast global marketing and distribution system. This also gives Disney the ability to integrate characters into their
theme parks which could spark new rides/attractions that give consumers a new reason to attend the parks. Hong Kong
Disneyland will open a new themed area at the park based on Marvel’s Iron Man franchise in 2016. The large amount of
IP available from Marvel should give consumer products a huge opportunity to unleash a gold mine of products. The first
movie released by Marvel after the acquisition was The Avengers, which grossed $1.5 billion globally, making it the 3rd
most lucrative movie in history.
Iron Man is a good example of what Marvel can do when left alone—it was the first film completely funded by Marvel
Studios, and it was expensive. Marvel didn’t recoup these funds until after the movie was released, so any other project
they may have wanted to work on was on the backburner until the Iron Man funds came back in. Now that Marvel has
access to Disney’s extensive funds, it will be very realistic to see at least two high quality superhero films made each year.
Disney has always struggled to find its place when it came to reaching the teen/young male audience. The Company fi-
nally started trying to hit the boy demographic when it launched the TV channel Disney XD, which already shows 20 pro-
grams from Marvel’s library, but it was having trouble finding an audience with its current lineup of characters. Now,
with so many characters to choose from, Disney won’t have that problem anymore, and can move forward with some
engaging content. This has been an area where Disney has experienced difficulties. This franchise is completely tangent
to the fairy tales and usual princess stories that Disney thrives in.
SECTION II
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II
Acquisition of Marvel
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30
In late 2012, Disney made another large acquisition of roughly $4.1 billion to
purchase Lucasfilm from George Lucas. This gives Disney complete and access
to the legendary Star Wars franchise. CEO Iger stated, “This is one of the great
entertainment properties of all time, one of the best branded and one of the
most valuable, and it's just fantastic for us to have the opportunity to both buy
it, run it and grow it .” Between 2015 and 2020, Star Wars Episodes VII, VIII,
and IX, and three spinoff pictures, will be released. True to Disney’s business,
they will also be able to unleash a world of consumer products in their stores
and theme parks. Disney is also considering the impact that Star Wars could
have in their TV segment. Iger believes Disney XD could be a potential home for
Star Wars entertainment away from the big screen.
Disney has a history of not meddling with the creative minds behind the com-
panies it acquires (i.e. Pixar, Marvel), which has been the key to successfully
integrating these creative powerhouses into its business. It is likely that Disney
will have the same management style with Lucasfilm. Star Wars fans watched
what happened when Disney purchased Pixar and Marvel, and many felt that the company could be trusted with George
Lucas’ franchise. A RebelForce radio co-host stated “Their handling of the Marvel properties has given them a lot of geek
cred.”
As stated in an article published by BloombergBusiness, “the Lucasfilm deal coincided with Iger’s plan for Disney: to se-
cure the company’s creative and competitive future at a time when consumers are inundated with choices, due to a prolifer-
ation of cable TV networks and the ubiquity of the Internet.”
Iger is looking to expand sales of Star Wars merchandise overseas, and ABC and Lucasfilm are discussing a live-action TV
series. However, Iger does not want to do anything that might harm the success of the upcoming movies. Iger stated that
it is his job to prevent the film from being over-commercialized or overhyped.
Although the future of this deal looks promising for Disney, there is still some skepticism regarding the deal. Disney’s
developing male audience will only buy more merchandise if Rebels and the upcoming Star Wars film “re-ignite an excite-
ment that faded with three poorly reviewed (yet financially successful) films released between 1999 and 2005”. There is
a lot of pressure because nearly all Star Wars related content released by Disney must be phenomenal in order to be suc-
cessful.
SECTION II
Appendix
II
Acquisition of Lucasfilm
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31
Disney acquired Maker Studios, a YouTube-based video supplier, for $500 million in March 2014. The studio’s YouTube
channel has over 380 million subscribers, and attracts over 5.5 billion views each month.
Large media corporations, like Disney, can use multi-channel networks (MCNs) to reach audiences they would otherwise
miss. While most of Disney’s recent acquisitions have been geared more towards acquiring intellectual property to fuel
its multiple business segments, the Maker deal is more about acquiring distribution and programming expertise. Maker
manages around 55,000 YouTube channels, which could provide a new pipeline for Disney characters and franchises to
the younger, “raised-on-the-Web” generation.
Since the acquisition, Maker Studios’ domestic audience has grown by 60%, in terms of monthly US viewership.
Kevin A. Mayer, Disney’s executive vice president for corporate strategy and business development, has admitted that
the deal will have a slightly negative impact on Disney’s EPS until 2017.
The chart above depicts that Maker and Fullscreen have been the most popular multi-channel networks in the US
for the past three years. An interesting trend seen in the chart is how Disney’s acquisition of maker triggered a
surge of MCN-related investments, and several networks have seen significant growth in their respective domestic
SECTION II
Appendix
I
Acquisition of Maker Studios
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32
Usually associated strictly with hardware, acquiring Nintendo
would open a can of worms for Disney. Nintendo is a company
that is struggling due to its reliance on hardware but that has-
n’t injured the value of the games or characters they have cre-
ated. Nintendo is an intellectual property magnate and Disney
could easily exploit the existing characters of Nintendo. We
can see Mario Kart raceways located in the theme parks and
Princess Peach incorporated into the world of Disney prin-
cesses. This doesn’t even begin to include the possibility of
toys and other items that can be sold in Disney’s vast collec-
tion of retail stores. Also, the incredible CGI creators through-
out Disney would have an easy time producing movies based
off Nintendo characters. Aside from DC Comics (Warner Bros),
Nintendo is the last company that owns a set of characters that could compete with the worlds that Disney has
created. This acquisition would give Disney almost complete control of entertainment. Currently, this would be
the lowest cost in seven years that Disney could purchase Nintendo for. If you were to multiply their net reve-
nue by a multiple of three or four, then Disney could most likely make the acquisition for anywhere between
$11 and $22 billion. However using the same strategy that they have for Marvel, Pixar and Star Wars, Disney
could likely recoup this disbursement in about five years.
Scripps Networks Interactive would be an acquisition that would complement Disney’s media segment. If they
were to acquire Scripps, Disney would gain access to the popular television channels Food Network, HGTV, Travel
and DIY. The target demographic for these shows include the same demographic as those who watch other Disney
content through ABC. This would be a costly acquisition and would likely total around $10 billion. Disney has a rev-
enue gap stemming from female viewers. This acquisition would help Disney reach the older, upscale women de-
mographic that they fail to reach with ESPN. All of Scripps channels are profitable and the content produced would
fit well between Disney’s segments.
SECTION II
Appendix
II
Potential Acquisitions for Disney
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33
APPENDIX III:
INDUSTRY OVERVIEW
Section I: Porters 5 Forces Models
Disney Overall
Media Networks
Parks and Resorts
Consumer Products
Studio Entertainment
Interactive Segment
Section II: Macroeconomic Analysis.
GDP Growth and Consumer Spending
Mergers & Acquisitions Activity
The Rise of the Global Middle Class
Section III: Industry Overview
SWOT Analysis: Disney Overall
Media Networks
Parks and Resorts
Consumer Products
Studio Entertainment
Interactive Segment
Appendix
III
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34
Threat of New Entrants| LOW; 2.0
Threat of Substitute Products| MODERATE; 2.6
Bargaining Power of Customers| LOW; 2.2
Bargaining Power of Suppliers| LOW; 2.4
Competitive Rivalry within the Industry| MODERATE; 3.0
Note: In order to take into account all segments and their respective industries, the team conducted an average
of the previous Porter Five Forces.
Sources: Team analysis
We used Porter’s Five Forces Model to evaluate the attractiveness of the Walt Disney Corporation
SECTION I
Appendix
III
LEGEND
0 No threat to the business
1 Insignificant threat to the business
2 Low threat to the business
3 Moderate threat to the business
4 Significant threat to the business
Figure 3-13: Five Forces Rated on Scale of 0-4
Competition in the
Industry
Threat of Substitute
Products
Bargaining
Power of Suppliers
Bargaining
Power of Buyers
4
3
2
1
0
Threat of New
Entrants
Porter’s Five Forces: The Walt Disney Company
INTRO BUSINESS
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DIS_Analyst Report_01312015

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