Disney Bans Advertising Unhealthy Food to Children
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Anybody who's ever spent a grueling 12 hours at a theme park with tired, sore children in tow would have an easy time associating Disney (NYSE: DIS) with the Darwinian struggle for survival. But the company has taken “survival of the fittest” to new heights with their announcement on Tuesday that they will no longer accept advertisers that market unhealthy foods to children on Disney's networks. This new policy will not take effect until 2015 due to existing ad contracts, but when it does, Disney will ensure that advertisers follow their new Magic of Healthy Living nutrition criteria, which will limit the calorie, salt, sugar, and fat content of meals and snacks.
The company will also be introducing a nutritional seal of approval, called Mickey Check, that will identify foods that meet their guidelines. The seal will be rolled out in all Disney properties, but will also be available for licensing on packaged food sold at grocery stores and online. Consumer advocates complain that the proliferation of various nutritional labeling programs only serves to confuse customers, and it may well be that the Mickey Check is destined to be one more misunderstood and overlooked symbol among many on the grocery shelf.
For investors, however, I see very little downside to the Mickey Check label, as it has negligible fixed costs to administer. On the other hand, never before has a company with the visibility and branding power of Disney introduced its own nutritional guidelines and label, and there is a chance that the program could take off. Even if it were wildly successful, the Mickey Check license would probably not significantly improve the bottom line of a business as vast and diversified as Disney, but on the whole it still seems like a sensible move.
The Mickey Check Disney will license to prepared food products
That brings us to the broader issue of whether Disney's Magic of Healthy Living initiative is good for investors. Disney anticipates losing some advertising revenue over the measure, but hasn't disclosed any numbers. I am inclined to think that Disney is talking about losing revenue because doing so makes them look virtuous; more concerned about children's health than crass profits. In projecting the revenue they actually stand to lose, it is important to remember that food advertising only accounts for a minority of overall advertising. Further, the most profitable property subject to the new advertising rules, the Disney Channel, operates on a subscription and sponsorship model, and does not take traditional ads. All told, Kantar Media Intelligence estimates that last year, about $7.2 million was generated from ads that would be banned under the new rules, about 1% of advertising revenue. And this is a company that took in over $40 billion in total revenue in 2011. Ultimately the potential loss in revenue is insignificant compared to the brand value this could create for Disney.
In 2011, Interbrand ranked Disney as the ninth most valuable brand in the world, worth over $29 billion. Part of their brand power is that parents trust Disney with their children, and this move should only improve that trust. The stronger the Disney brand, the better the company is able to maintain price premiums over their competitors' offers. Disney World, after all, is where dreams come true. SeaWorld is just a bunch of fish. If the new health guidelines can increase the value of the brand even minutely, then the program is, as Chairman Bob Iger said, “smart business.”
A bigger question might be how this affects Disney's advertisers. PepsiCo (NYSE: PEP) has already set ambitious nutritional goals under CEO Indra Nooyi, who has pledged to triple the sales of what she calls “good for you” products by 2020. Disney's new rules will, if anything, serve to bolster Pepsi's efforts. Conversely, companies like McDonald's (NYSE: MCD) might find themselves completely shut out of Disney's various advertising platforms. According to Disney VP of Corporate Citizenship Leslie Goodman, Disney will evaluate the entire menu of a potential advertiser for adherence to their guidelines. If Disney follows through on this, then even if McDonald's designs several meals that fit the nutritional guidelines, if their menu as a whole doesn't pass muster, then the company can't advertise on Disney properties at all.
Even worse for such companies, Disney's move could put pressure on Viacom (NASDAQ: VIA) and Time Warner (NYSE: TWX) to adopt similar standards for their own children's programming, Nickelodeon and Cartoon Network. While neither company publicly expressed any intent to follow Disney's example, if Disney's program proves popular with parents they may reconsider. That would take valuable avenues of marketing away from McDonald's, and would benefit healthier competition. Ultimately, Disney's new nutritional guidelines may prove important not because of what they do for Disney, but for what they do to the food industry.
Daniel Ferry owns shares of Walt Disney and PepsiCo. The Motley Fool owns shares of Walt Disney and PepsiCo. Motley Fool newsletter services recommend McDonald's, PepsiCo, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.