A guide to Disney’s Consumer Products and Interactive Media segment

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 leveraging 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 businesses in the Consumer Products segment generate royalty revenue by licensing characters from its film, television, and other properties to third parties for use on consumer merchandise, wholesale revenue from publishing children’s books, magazines, and comic books, sales of merchandise at its retail stores, fees charged at its 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.

Merchandise licensing

The company’s merchandise licensing operations cover a diverse range of product categories, the most significant of which are toys, apparel, home decor and furnishings, stationery, health and beauty, food, footwear, and consumer electronics. The company licenses characters from its film, television, and other properties for use on third-party products in these categories and earns royalties, which are usually based on a fixed percentage of the wholesale or retail selling price of the products. Some of the major properties licensed by the company include Mickey and Minnie, the Marvel properties including Spider-Man, The Avengers, and Iron Man; Disney Princess, Cars, Disney Jr., Star Wars,Winnie the Pooh, Monsters University, and Toy Story. The company also participates in the design of individual products and creates exclusive themed and seasonal promotional campaigns for retailers based on the company’s characters, movies, and TV shows.

Publishing

Disney Publishing Worldwide (or DPW) creates, distributes, licenses, and publishes children’s book, magazine, and learning products in print and digital formats in multiple countries and languages based on the company’s branded franchises. DPW also operates Disney English, which develops and delivers an English-language learning curriculum for Chinese children using Disney content in 44 centers across 11 cities in China.

Marvel Publishing creates and publishes comic books and graphic novel collections of comic books, principally in North America, in print and digital formats. Marvel Publishing also licenses the right to publish translated versions of these comic books, principally in Europe and Latin America. Titles include The Avengers, X-Men, Spider-Man, Iron Man, and Wolverine.

Retail

The company markets Disney- and Marvel-themed products through retail stores operated under the Disney Store name and through Internet sites in North America (DisneyStore.com and MarvelStore.com), Western Europe, and Japan. Commencing in fiscal 2014, it will also market Lucasfilm-themed merchandise. The stores, which are generally located in leading shopping malls and other retail complexes, carry a wide variety of Disney merchandise and promote other businesses of the company. The company currently owns and operates 214 stores in North America, 88 stores in Europe, and 46 stores in Japan. The company also offers merchandise that it designs and develops under wholesale arrangements.

Fiscal 2013 performance

Consumer Products revenues increased 9%, to $3.6 billion, and segment operating income increased 19%, to $1.1 billion.  Merchandise Licensing was driven by the performance of Disney Junior, Monsters University, Mickey and Minnie, Iron Man, and Planes merchandise, partially offset by lower earned revenue from Cars and Winnie the Pooh merchandise. Merchandise Licensing results also increased due to the inclusion of the Star Wars results. At its Retail business, higher operating income for the year was due to comparable store sales growth in North America and Japan and higher online sales in North America. At Publishing, higher operating income for the year was due to the strength of Marvel comics.

Interactive Games

Interactive Games develops console, mobile, social, and virtual world games, which are marketed and distributed worldwide. Console game releases in fiscal 2013 included Disney Infinity and Epic Mickey 2. Disney Infinity delivers Disney content and features a game world, which combines physical toys and story-driven gameplay where a variety of Disney stories and characters can exist and interact. The company’s principal virtual world game is Disney’s Club Penguin. Other online games include games for social networking websites such as Marvel Avengers Alliance and Gardens of Time, and games for smartphones such as Where’s My Water? Certain properties are also licensed to third-party video game publishers. The Japan Mobile business licenses Disney-branded phones, content, and games to mobile carriers in Japan.

Interactive Media

Interactive Media develops, publishes, and distributes interactive family content through a portfolio of platforms including Disney.com, Disney on YouTube, and Babble.com and develops and publishes apps for moms and families. Interactive Media also provides website maintenance and design for other company businesses.

The businesses in the Interactive segment generate revenue from the sale of multi-platform console games, subscriptions to and micro transactions for online and mobile games, content and handset revenue from its Disney-branded mobile phone business in Japan, and online advertising and sponsorships. It also generates fees from licensing its properties to third-party game publishers. Significant costs include cost of goods sold and distribution expenses and product development.

Fiscal 2013 performance

Its interactive segment revenues for fiscal 2013 increased 26%, to $1.1 billion, and segment operating loss narrowed to $87 million. The improvement in the results for the quarter and year were due to increases at its console games and Japan mobile businesses. The increase in game sales and subscriptions revenue were driven by an increase of 25% from higher self-published console game revenues due to the fourth quarter release of Disney Infinity and 7% due to the inclusion of Lucasfilm’s interactive games business.

Disney Infinity is a platformer sandbox video game that was launched in August 2013. It’s an action-adventure game with physical toys, open world creation, and story-driven gameplay. Characters, play-sets, and other features are brought into the game using figurines and discs with the included Infinity Base. There are a number of play sets available, including Pirates of the Caribbean, Monsters University, The Incredibles, Cars, The Lone Ranger, and Toy Story. A PC version of Toy Box was also released on November 14, 2013. According to video game sales tracker VGChartz, the game has sold 1.75 million copies since it was released on August 18.

Japan mobile results benefited from the full-year impact of a licensing agreement that started in February 2012, which drove an increase in handset sales and subscribers for the year and quarter.