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A Look at Disney’s Studio Entertainment Segment

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Disney’s Studio Entertainment segment

The Walt Disney Company’s (DIS) Studio Entertainment segment produces and acquires live-action and animated motion pictures, video content, musical recordings, and live stage plays. It distributes films under The Walt Disney Studios, which includes primarily Walt Disney Pictures, Pixar, Marvel, Touchstone, and Lucasfilm.

Disney also produces and distributes Indian movies through the UTV banner.

As the above graph shows, Disney’s Studio Entertainment segment had revenues of $1.7 billion in 2Q15, down 6% from 2Q14. The segment had operating income of $0.4 billion, a 10% fall from 2Q14.

About 5% of the revenues in this segment include an allocation of Disney Consumer Products revenues, which reflect royalties on merchandise sales based on Disney films.

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Three Markets

Disney’s Studio Entertainment segment distributes and markets films in three markets: theatrical, home entertainment, and television or SVOD (subscription video on demand).

For its theatrical market, Disney expects to distribute 11 of its own films in the United States in fiscal 2015. Disney’s Studio Entertainment segment expects to release three films from the Star Wars franchise from 2015 to May 2017.

The home entertainment market accounted for 27% of Disney’s Studio Entertainment’s revenues. The fall in Studio Entertainment’s operating income was due to a decrease in the domestic home entertainment market when Disney’s movie Big Hero 6 was not as successful as Frozen in the prior quarter.

The television market has three syndication windows referred to as Pay 1, Pay 2, and Pay 3. Films are licensed to cable networks such as Comcast (CMCSA), SVOD services such as Amazon (AMZN) Prime Instant Video, and third-party television station groups.

Currently, Disney has entered into an exclusive syndication arrangement with Netflix (NFLX) for the Pay 1 and Pay 2 windows for films released through calendar year 2018.

You can get a diversified exposure to Comcast by investing in the Consumer Discretionary Select Sector SPDR ETF (XLY), which holds 6.71% of the stock.

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