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Page 1: Walt Disney Annual Report Analysis

Walt Disney

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Page 2: Walt Disney Annual Report Analysis

Introduction For more than eight decades, the name Walt Disney has been preeminent in

the field of family entertainment. From humble beginnings as a cartoon studio in

the 1920s to today's global corporation, The Walt Disney Company continues to

proudly provide quality entertainment for every member of the family, across America and around the world.

Walt Disney

Walt Disney is one of the largest media and entertainment corporations in the

world. Founded on October 16, 1923, by brothers Walt and Roy Disney as an

animation studio, it has become one of the biggest Hollywood studios, and

owner and licensor of eleven theme parks and several television networks,

including ABC and ESPN. Disney's corporate headquarters and primary

production facilit ies are located at The Walt Disney Studios in Burbank,

California. The company is a component of the Dow Jones Industrial Average.

John E. Pepper, Jr. ( )

Robert Iger ( ) & ( )

Anne Sweeney (

)

ABC, ABC Family, ABC Kids, Walt Disney Distribut ion, Walt Disney Motion Pictures

Group, Disney Channel, ESPN, Jet ix, Walt Disney Studios, Walt Disney Parks and

Resorts, Walt Disney Television Animation, Walt Disney Records, Walt Disney

Pictures, Touchstone Pictures, Miramax Films, ABC Studios, Playhouse Disney,

Page 3: Walt Disney Annual Report Analysis

Disney Consumer Products, Pixar Animation Studios, SOAPnet, Disney Interactive

Studios, Muppets Holding Company, Disney Store, Toon Disney, New Horizon

Interactive, and Hollywood Records

Walt Disney

The Walt Disney Studios is the foundation on which Disney was built, and at its heart

are world-renowned animated features and live-action motion pictures. With the

creation of Mickey Mouse and Snow White and the Seven Dwarfs, the world's first full-

length animated feature, the Disney name quickly became synonymous with quality

entertainment for the whole family

Disney's Parks and Resorts is not just home to

Disney's beloved characters but the place "Where

Dreams Come True." The segment traces its roots to

1952, when Walt Disney formed what is today known

as Walt Disney Imagineering to build Disneyland Park in Anaheim, California.

Since then, Parks and Resorts has grown to encompass the world-

class

Disney Cruise Line, eight Disney Vacation Club resorts (with more than 100,000

members), Adventures by Disney (immersive Disney-guided travel around the world),

and five resort locations (encompassing 11 theme parks, including some owned or co-owned by independent entities) on three continents:

Page 4: Walt Disney Annual Report Analysis

Disney merchandising began in 1929 when

Walt Disney was approached by a businessman

interested in placing Mickey Mouse on the cover of a

children's writing tablet. Disney Consumer Products

and affiliates (DCP) extend the Disney brand to

merchandise ranging from apparel, toys, home décor

and books and magazines to interactive games,

foods and beverages, stationery, electronics and fine

art. This is accomplished through DCP's various lines of

business which include: Disney Toys, Disney Apparel,

Accessories & Footwear, Disney Food, Health & Beauty, Disney Home and Disney Stationery.

Disney Publishing Worldwide (DPW) is the world's largest publisher of children’s books

and magazines, reaching more than 100 million readers each month in 75 countries.

Disney's imprints include Disney Libri, Hyperion Books for Children, Jump at the Sun, Disney Press, and Disney Editions.

Media Networks comprise a vast array of

broadcast, cable, radio, publishing and Internet

businesses. Key areas include: Disney-ABC Television

Group, ESPN Inc., Walt Disney Internet Group, ABC

owned television stations, and a supporting

headquarters group. Marketing, research, sales and

communications functions also exist within the

segment.

Page 5: Walt Disney Annual Report Analysis

Competitors

The recent AOL/Time Warner merger is one of the most significant mergers in the

history of corporate America. For years, Time Warner was a media giant,

producing films, television networks, professional sports, and digital media. They also held the brand name, Warner Brothers. America Online is current ly the #1

internet service and owns Netscape and Compuserve. Together, AOL Time Warner, Inc. will challenge the industry dominance of The Walt Disney

Company.

AOL Time Warner, Inc. is Disney's chief competitor. This company not only

challenges Disney's television interests, but also looks to be competitor in

merchandising. The Warner Brother label will be the name brand name in this merchandising effort . The merger put the final nail in the coffin of The Go

Network and has had a significant effect upon Disney Internet interests.

Viacom is the world's third largest media company. They operate well known

affiliates such as CBS Enterprises, Paramount Television, Blockbuster Video, and

Infinity Broadcast ing. Viacom also produces TV shows and mot ion pictures through popular cable outlets. The most popular of these channels are Black

Entertainment Television, Showtime, MTV Networks.

Page 6: Walt Disney Annual Report Analysis

CBS promises new programming and a stong late night lineup that may

challenge the success of ABC and their hit telev ision show, "Who Wants To Be A Millionaire". CBS offers a huge threat to the future of The Walt Disney Company

and The ABC television network. In order to maintain its posit ion as the world's #1 media conglomerate, Disney must continue to improve upon the quality of its

television programming.

The Fox Entertainment Group is a serious competitor to the strength of Disney's

television networks. Popular Fox shows, such as Ally McBeal, and sport ing

interests, such as the broadcast ing rights to the National Football league have challenged Disney's television dominance.

Paramount Pictures Corporation is an United States motion picture production and

distribution company, based in Hollywood, California. Founded in 1912, it is the oldest

running movie studio in Hollywood, beating Universal Studios by a month.I t has the

largest studio market share. It has produced most of the popular Hollywood Titles.

Titanic produced by Paramount is currently the Biggest grosser in both the domestic

and International market.

The following chart shows 2007 domest ic studio market share by gross revenue. Total gross revenue in that year was ~$9.7B for the industry as a whole.

Page 7: Walt Disney Annual Report Analysis

Rank Company Market

Share

1 Paramount 15.50%

2 Warner Bros 14.70%

3 Buena Vista 14.00%

4 Sony/Columbia 12.90%

5 Universal 11.40%

6 20th Century

Fox

10.50%

7 New Line 5.00%

8 Lion Gate 3.80%

9 MGM/UA 3.80%

10 Fox Searchlight 1.40%

11 Miramax 1.30%

12 Rogue Pictures 0.80%

16%

15%

15%

DISNEY14%

12%

11%

5%4%

4%

2% 1%1%

1 Paramount 2 Warner Bros 3 Buena Vista

4 Sony/Columbia 5 Universal 6 20th Century Fox

7 New Line 8 Lion Gate 9 MGM/UA

10 Fox Searchlight 11 Miramax 12 Rogue Pictures

Page 8: Walt Disney Annual Report Analysis

Method used for forecasting

This method is a ‘classical method’ of business forecast ing . It is essentially

concerned with the study of movement of variables through t ime . The use of

this method requires a long and reliable t ime-series data . Trend projection

method is used under the assumption that the factors responsible for past t rends

in the variable to be projected will continue to play their part in fut ure in the

same manner and to the same extent as they did in the past in determining the

variable.

There are 3 techniques of t rend projection based on t ime-series data:

In this method, a trend line is fitted to the t ime-series sales data either visually

or by regression analysis. The linear regression model will take the form of

St = So + bt

Where:

St= value of t ime series to be forecasted for period t

S0= est imated value of t ime series in the base period

b= absolute amount of growth per period

t= t ime period for which series is to be forecasted

Page 9: Walt Disney Annual Report Analysis

So = [(∑S)( ∑(t2))-( ∑t)*( ∑s*t)]/d

b=[n∑s*t-(∑t)( ∑s)]/d

where d=n∑(t2)-( ∑t)2

One characterist ic of this method is that each observation has the same weight.

Shortcomings of t rend projection:

One of the most successful forecast ing methods is the exponential smoothing

(ES) techniques. Exponential smoothing overcomes many objections of simple

moving averages. ES is an averaging technique that uses unequal weights; however, the weights applied to past observations decline in an exponential

manner.

Exponential smoothing is a technique of t ime series forecast ing that gives

greater weight to more recent observations. The first step is to choose a

smoothing constant w where 0<w<1. If there are n observations in a t ime series,

the forecast for the next period i.e. (t+1) is calculated as a weighted average of

the observed value of the series at period t and the forecasted value for that

same period. Thus, the value of the forecast of the t ime series in period t+1 is

Ft+1 = wAt + (1-w)Ft

where:

Page 10: Walt Disney Annual Report Analysis

A small w provides a detectable and visible smoothing. While a large w

provides a fast response to the recent changes in the t ime series but provides a

smaller amount of smoothing.

For selecting the value of w, we will calculate RMSE(root mean square error)

RMSE=√(∑(A –F)2/n)

The value of w is accepted for which RMSE is minimum.

Page 11: Walt Disney Annual Report Analysis

Analysis Of Data

PERIOD REVENUES

1 27061

2 30752

3 31347

4 33747

5 35510

0

5000

10000

15000

20000

25000

30000

35000

40000

1 2 3 4 5

REVENUES IN MILLIONS

YEAR PERIOD REVENUES S*t

2003 1 27061 27061 2004 2 30752 61504

2005 3 31347 94041

2006 4 33747 134988 2007 5 35510 177550

15 158417 495144 55

d= 50 s0= 25715.5

b= 1989.3

2003 2004 2005 2006 2007 2008 st= 27704.8 29694.1 31683.4 33672.7 35662 37651.3

A-F -643.8 1057.9 -336.4 74.3 -152 (A-F)^2

1675420

rmse 578.8645

Page 12: Walt Disney Annual Report Analysis

PERIOD PROFITS

1 1267

2 2345

3 2533

4 3374

5 4687

YEAR

PERIOD

PROFITS P*T

2003

1 1267 1267

2004

2 2345 4690

2005

3 2533 7599

2006

4 3374 13496

2007

5 4687 23435

15 14206 50487

55 d= 260

p0= 92.403846

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1 2 3 4 5

PROFITS

(In millions)

Page 13: Walt Disney Annual Report Analysis

15 b= 151.32692

31

pt 243.7307692

395.0576923

546.3846

697.7115

849.0385

1000.365

2101.269231

2137.942308

2827.615

3989.288

13356.96

(A-F)^2

2.11E+08

rmse

6500.837

YEAR

PERIOD

REVENUES

FORECASTING WITH W=0.5

A-F FORECASTING WITH W=0.6

A-F FORECASTING WITH W=0.7

A-F w=0.8

A-F w=0.9

A-F

2003

1 27061

31683.4

-4622.4

31683.4 -4622.4

31683.4 -4622.4

31683.4

-4622.4

31683.4

-4622.4

2004

2 30752

29372.2

1379.8

28909.96

1842.04

28447.72

2304.28

27985.48

2766.52

27523.24

3228.76

20 3 3134 30062. 1284 30200.0 1146 30338.0 1008 304 870. 306 732.

Page 14: Walt Disney Annual Report Analysis

05 7 1 .9 8 .92 6 .94 76.04

96 14.02

98

2006

4 33747

30704.55

3042.45

30833.04

2913.96

30961.53

2785.47

31090.02

2656.98

31218.51

2528.49

2007

5 35510

32225.775

3284.225

32530.02

2979.98

32834.265

2675.735

33138.51

2371.49

33442.76

2067.245

2008

33867.8875

34196.31

34524.7325

34853.16

35181.58

SUM 158417

SIGMA (A-F)^2

44964034

43446562

42612649

42462294

42995496

rmse 2998.801

2947.764

2919.337

2914.182

2932.422

AVERAGE

31683.4

YEAR

PERIOD

PROFITS

FORECASTING

WITH W=0.5

A-F FORECASTING WITH

W=0.6

A-F FORECASTING WITH

W=0.7

A-F w=0.8 A-F w=0.9 A-F

2003

1 1267

2841.2 -1574.

2

2841.2 -1574.

2

2841.2 -1574.

2

2841.2

-1574.

2

2841.2

-1574.2

2004

2 2345

2054.1 290.9 1896.68 448.32

1739.26 605.74

1581.84

763.16

1424.42

920.58

2005

3 2533

2199.55 333.45

2228.64 304.36

2257.73 275.27

2286.82

246.18

2315.91

217.09

20 4 337 2366.27 1007. 2399.62 974.3 2432.96 941.0 2466. 907.6 2499. 874.345

Page 15: Walt Disney Annual Report Analysis

06 4 5 725 8 5 35 31 9 655

20

07

5 468

7

2870.13

75

1816.

863

2970.91 1716.

09

3071.68

25

1615.

318

3172.

455

1514.

545

3273.

228

1413.7725

3778.56

875

3960.25

5

4141.94

125

4323.

628

4505.

314

SUM 14206

SIGMA (A-F)^2

6990416

6666113

6415598

6238871

6135933.105

rmse 1182.406

1154.653

1132.749

1117.038

1107.784555

AVER

AGE

284

1.2

PERIOD REVENUES PROJECTED

1 27061 27704.8

2 30752 29694.1

3 31347 31683.4

4 33747 33672.7

5 35510 35662

0

5000

10000

15000

20000

25000

30000

35000

40000

1 2 3 4 5

REVENUES

ACTUAL

REVENUES

PROJECTED

0

5000

10000

15000

20000

25000

30000

35000

40000

1 2 3 4 5

REVENUE

ACTUAL

REVENUE

PROJECTED

Page 16: Walt Disney Annual Report Analysis

YEAR PERIOD PROFITS PROJECTED

2003 1 1267 2841.2

2004 2 2345 1424.42

2005 3 2533 2315.91

2006 4 3374 2499.655

2007 5 4687 3273.228

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

1 2 3 4 5

PROFITS

PROJECTED

Page 17: Walt Disney Annual Report Analysis

Conclusion

A

The Walt Disney