Disney's Accelerated International Expansion
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Walt Disney (NYSE: DIS) has ramped up its investments in its foreign theme parks, in lieu of increasing capital expenditures at its other businesses. It is also building its cable television network presence overseas. The expansion measures have so far helped to fuel increasing income from Europe, Asia, and Latin America. Will Disney continue its focus abroad while domestic businesses receive less attention?
Shanghai progressing well
In early 2011, Disney announced plans for a Shanghai, China-based theme park and resort, now projected to open in late 2015. Earlier this year, it released a sneak preview of what the roughly-1,000 acre park might look like (see photo). Current estimates suggest total outlays of about $29 billion yuan ($4.7 billion) for startup costs.
If the performance of Hong Kong Disneyland is any indication, the China property should fare well from a profitability standpoint. Disney continues to add attractions at the Hong Kong property, where attendance is climbing. Indeed, factoring in both the Paris and Tokyo parks, international attendance jumped 6% in fiscal 2012 (ended in September).
The company has a 51% majority interest in Disneyland Paris, a 48% stake in Hong Kong Disneyland Resort, and a 43% interest in Shanghai Disney Resort. All are organized as variable interest entities and are consolidated in its financial statements.
Where Disney is allocating investments
The Dow 30 component and entertainment giant has historically spent heavily to expand and update its Parks and Resorts division. In 2012, it shelled out $2.9 billion for that purpose, including $641 million internationally. The international amount was nearly a 50% boost year over year. Its budgeting has remained similar in 2013, with domestic park investments taking a backseat to spending overseas.
On that note, Disney is currently seeing the benefits of recent year investments in its California Adventure theme park, as well as its cruise lines. North American Park and Resorts revenue advanced a solid 12% in the March quarter.
Absent theme parks, Disney's entertainment industry peers focus their overseas investments primarily on the television networks. While Disney has expanded its ESPN and Disney Channel formats to reach audiences abroad, others are following suit.
Viacom Inc. (NASDAQ: VIAB) owns an international unit consisting of locally programmed editions of its core MTV, VH1, Nickelodeon, Comedy Central, and BET networks. It also airs the Paramount Channel, a movie network in Spain, along with numerous other regionally-tailored networks.
Viacom's overseas channels have been received well. However, revenues from Europe are on a decline of late. Nevertheless, I believe that as Viacom expands its international asset base, it will contribute to the bottom line and add to its investment value as a buy and hold selection.
Elsewhere, CBS Corp. (NYSE: CBS) has followed a different strategy, like with its international joint ventures, such as with Liberty Global, a station owner in Europe. It has segmented this operation into Action, Drama, Reality and Europa networks. The company has similar agreements in India and Australia, where it partially owns satellite and cable channels.
CBS also generates international syndication revenues, but is not a major presence on the overseas stage. It does budget a significant portion of its cash investments to international, as well as domestic, joint ventures. Given the quality of CBS' content, it is well-situated to perform well. International ventures are a significant part of this outlook. The shares carry upside for the long term at this time.
As we await the opening of Shanghai Disney Resort in 2015, it will be interesting to note the performance of Disney's existing Asian vacation properties. Meantime, it will likely continue to seek out tuck-in acquisitions overseas that expand its foothold in the growing cable TV market. Plus, it will invest organically in international extensions of its brands. You should check out Disney, you might decide it is a worthwhile and high-quality holding.
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Damon Churchwell has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!