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That’s Show Business: Disney’s Studio Entertainment Segment

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Revenue distribution

According to a Variety report dated September 2, 2015, Steven Spielberg’s DreamWorks Studios will not renew its distribution deal with The Walt Disney Company (DIS). Disney entered into an agreement with DreamWorks Studios in August 2009 to distribute movies produced by DreamWorks for seven years under the Touchstone Pictures banner.

The report also mentions that DreamWorks may move to Comcast’s (CMCSA) Universal Studios for the distribution of its movies. If DreamWorks does move to Universal, the move could affect Disney’s Studio Entertainment’s theatrical distribution revenues.

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Disney’s Studio Entertainment segment distributes and markets films in three markets: theatrical, home entertainment, and television or SVOD (subscription video on demand). As the chart above indicates, theatrical distribution had the largest share of the Studio Entertainment segment with a revenue share of 51% or revenues of $1 billion in fiscal 3Q15. The Studio Entertainment segment had revenues of $2 billion in fiscal 3Q15, rising 13% over fiscal 3Q14, and operating income of $472 million, rising 15% over fiscal 3Q14.

Performance in fiscal 3Q15

Disney’s Studio Entertainment segment performed strongly in fiscal 3Q15. Three of its movies—CinderellaAvengers: Age of Ultron, and Inside Out—have collectively earned~$3 billion worldwide.

For its theatrical market, Disney expects to distribute 11 of its films in the United States in fiscal 2015. Also, it plans to release three films from the Star Wars franchise starting later this year to May 2017.

Disney’s home entertainment business had revenues of $282 million in fiscal 3Q15, a 29% decline from fiscal 3Q14. This drop was due to lower sales of Big Hero 6 than Frozen in fiscal 3Q14.

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, SVOD services such as Amazon’s (AMZN) Prime Instant Video, and third-party television station groups. 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 diversified exposure to Disney by investing in the SPDR Dow Jones Industrial Average ETF (DIA), which holds 4.12% of the stock.

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