How Disney Makes Money? Understanding Disney Business Model Core Elements

This post is about how the Walt Disney Company ("Disney") makes money. Firstly, we share information on Disney business segments. Then, we explain how Disney generates revenues from each of the business segments. Then, we provide Disney revenues by its business segments for the year FY 2014 (fiscal year ending September 2014). Finally, we provide the revenues, the profits, and the profit margins of Disney for FY 2014.

Disney Business Segments

The Walt Disney Company (“Disney”) is a diversified global entertainment company. It has five business segments: Media Networks, Parks and Resorts, Studio Entertainment, Consumer Products, and Interactive. Following is a description of how Disney makes money through each of the business segments.

Disney Business Segments

How Disney makes money from Media Networks business?

This segment includes broadcast and cable television networks, television production operations, television distribution, domestic television stations, and radio networks and stations. The company’s cable television networks include ESPN, Disney channels, ABC Family, and UTV/Bindass networks. The company’s broadcast businesses include the ABC TV network and owned television stations, ESPN Radio network and radio stations, and Radio Disney network and radio stations. The company also produces original live-action and animated television programming.

This segment generates revenues predominantly from:

  • Affiliate fees charged to cable, satellite, and telecommunication services providers (Multi-channel Video Programming Distributors, or MVPDs) and television stations affiliated with Disney’s US broadcast television network
  • Advertising revenues from the sale to advertisers of time in programs for commercial announcements
  • Other revenues, which includes the sale and distribution of television programming. It may be sold in pay and international television markets, on DVD and blu-ray formats, and through online services.

This segment operating expenses include: programming and production costs, technical support costs, distribution costs, and operating labor costs.

How Disney makes money from Parks and Resorts business?

This segment includes Disney’s resorts across the globe. The company owns and operates the Walt Disney World Resort in Florida and the Disneyland Resort in California. Internationally, the company has 51% effective ownership interesting in Disneyland Paris, 48% ownership in Hong Kong Disneyland Resort (HKDL), 43% ownership interesting in Shanghai Disney resort (which is in construction), earns royalties on revenues generated by Tokyo Disneyland Resort. The resorts include theme parks, resort hotels, retail, dining and entertainment complex, sports complex, conference centers, water parks, and other recreational facilities. The company also operates Disney cruise line and markets vacation club ownership interests through Disney vacation club. The company’s Walt Disney Imagineering unit designs and develops theme park concepts and attractions as well as resort properties.

This segment generates revenue predominately from:

  • sale of admission to theme parks
  • sales of food, beverage, and merchandise
  • charges for room nights in hotels
  • sales of cruise vacation packages
  • sales and rentals of vacation club properties

This segment operating expenses include: marketing and sales expenses, cost of merchandise, food, and beverage sold, cost of vacation club units, infrastructure costs, labor, and deprecation. The infrastructure costs include information systems expenses, repairs and maintenance, utilities, property taxes, insurance, and transportation.

How Disney makes money from Studio Entertainment business?

In this segment, the company produces and acquires live-action and animated motion pictures. The company distributes the pictures under the Walt Disney Pictures, Pixar, Marvel, Touchstone, Lucasfilm, and UTV banners. The company also produces stage plays and musical recordings, and licenses and produces live entertainment events and provides visual and audio effects and other post-production services.

The businesses in this segment generate revenue from the distribution of films to the theatrical, home entertainment, and television markets worldwide. The company also generates revenue from the distribution of recorded music, stage play ticket sales, and licensing revenues from live entertainment events.

The key operating expenses for this segment include: film cost amortization, which consist of production cost and participants and residuals expense amortization, distribution expenses, and cost of sales.

How Disney makes money from Consumer Products business?

In this segment, the company licenses its trade names, characters, and visual and literary properties to various retailers, show promoters, and publishers throughout the world. The company also engages in retail, online, and wholesale distribution of products through The Disney Store and DisneyStore.com. The company publishes entertainment and educational books and magazines and comic books for children and families and operates English language learning centers in China.

The business in this segment generate revenue from licensing characters from Disney film, television, and other properties to third parties for use on consumer merchandise, publishing of children’s books and magazines, the sale of merchandise to retailers, and fees from English language learning centers in China.

The key operating expenses for this segment include costs of goods sold, distribution expenses, operating labor, and retail occupancy costs.

How Disney makes money from Interactive business?

In this segment, the company creates and delivers branded entertainment and lifestyle content across interactive media platforms. It includes the production and distribution of multi-platform games, the licensing of game content, and the development of branded online services.

The businesses in this segment generate revenue from the sale of multi-platform games, subscription to and micro transactions for online and mobile games, licensing content, and online advertising and sponsorships.

The key operating expenses in this segment include cost of goods sold, distribution expense, and product development.

Disney Business Model Core Elements

The key revenue and cost elements of Disney business model are summarized in the diagram below. It shows how the money flows-in from the different customer segments to the corresponding business segments of Disney. It also shows the Disney business segment's key cost elements where the money flows-out to.

How Disney Makes Money v1

Disney Revenues by Business Segment FY'14

In FY'14 (fiscal year ended September 27, 2014), Disney generated $48.8 billion of total revenues. Of these total revenues, Disney generated

  • $21.2 billion revenues, 43.3% of the total, from the media networks business segment. Of the $21.2 billion, Disney generated $15.1 billion from cable networks and $6.0 billion from broadcasting business.
  • $15.1 billion revenues, 30.9% of the total, from the parks and resorts business segment. Of the $15.1 billion, Disney generated $12.3 billion from US parks and resorts and $2.8 billion from International parks and resorts.
  • $7.3 billion revenues, 14.9% of the total, from the studio entertainment business segment. Of the $7.3 billion, Disney generated $2.4 billion from theatrical distribution, $2.1 billion from home entertainment, and $2.8 billion from television and SVOD (subscription video on demand) distribution and other.
  • $4.0 billion revenues, 8.2% of the total, from the consumer products business segment. Of the $4.0 billion, Disney generated $2.5 billion from licensing and publishing and $1.4 billion from retail and other.
  • $1.3 billion revenues, 2.7% of the total, from the interactive business segment. Of the $1.3 billion, Disney generated $1.1 billion from games and $0.2 billion from other content.

Disney Business Segments Revenues and Revenue Share FY14

Disney Profits and Profit Margins FY'14

Of the $48.8 billion of Disney total revenues in FY'14, $26.4 billion were the cost of revenue. This resulted in $22.4 billion of gross profit and a gross margin of 45.9%. Disney other operating costs were $10.9 billion. These include selling, general, and administrative expenses. These also include the depreciation and amortization expenses.  This resulted in $11.5 billion of operating profit and an operating margin of 23.6%. After interest and other non-operating income and expenses and income taxes, Disney had a net profit of $7.5 billion and a net margin of 15.4%.

Disney Profits and Profit Margins FY14

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