Magic of Healthy Living Initiative Will Not Hurt Disney

By Erin McBride - June 19, 2012 | Tickers: DKS, GIS, K, KRFT, DIS | 0 Comments

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Little Ralphie in “A Christmas Story” may have demonstrated it best- he receives his Secret Society decoder pin from the Little Orphan Annie radio show after weeks of anxious waiting. He listens attentively to his favorite radio program for the clues. But in the end, he learns an important lesson in advertising, the “secret message” is nothing more than product placement from the show's sponsor, Ovaltine. "A crummy COMMERCIAL!"

How many of us, old and young alike, have watched a commercial once, twice, or maybe a dozen times, and then suddenly, just HAD to have the product? How many times as children did we beg our mothers for a certain brand of cereal because it had a toy from our favorite television show in it? Do your own children like regular fruit snacks? Or fruit snacks in the shape of Mickey Mouse ears?

Promotional advertising works. The end.

Which is why consumers and responsible investors should pay attention to the Walt Disney Company (NYSE: DIS) in the new Magic of Healthy Living initiative to combat childhood obesity by only accepting advertisers that comply with a strict new set of nutritional standards.

The restriction on ads targeting children extend to Saturday morning cartoons on the Disney-owned ABC network. Under the new restrictions, products like candy bars, junk food, fast food, Capri Sun drinks, even Kraft (NASDAQ: KRFT) Lunchables (too much sodium) will no longer be accepted.

Disney acknowledged that in this move the company may lose some advertising revenue. However, the ad restrictions will not go into place until 2015, due to long-term contracts with current advertisers. Thus, the ad revenue loss will be delayed, if it happens at all. Advertising companies have plenty of time to find healthier products to promote (if they produce them).

Disney has also introduced the “Mickey Check” for grocery stores. Disney-licensed products that meet the nutritional criteria, will receive a Mickey Check logo- right at eye-level for moms and hopeful kids alike.

From an investment standpoint the question comes down to this- will Disney actually lose revenue from this initiative, and if so, how much?

New York research firm, Kantar Media, estimates that the new junk food ban will cost less than $7.2 million in television ad revenue if it were in effect last year. That is the amount of revenue brought in from beverage and food commercials for children in 2011.

Or better put, that is less than a 10^th of a percent of Disney's total annual advertising sales. Hardly something investors need to be worried about.

Fellow Fool Blogger, Daniel Ferry, suggests the following:

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. 

While overall I agree with his assessment, there is more to be said. First, this is ABC-Disney Saturday morning cartoons. For advertisers looking to reach their target demographic of easily malleable young people, this is Boardwalk, Park Place, and all of the other properties put together. Maybe there will be fewer available advertisers to purchase those ad blocks, but they will get purchased. Advertisers will still pay what the network demands for those spots. There will just be a different type of advertisement in those spots.

In a perfect world designed and orchestrated by First Lady Michelle Obama, those spots would get filled with ads for new jump ropes, oranges, and broccoli. But how about spots filled by the Boy Scouts or Girl Scouts, Boys and Girls Club, or Big Brothers Big Sisters? Of course, a company cannot make a profit by only accepting advertisements from non-profit organizations. What if the current advertisers just change their focus? For instance, Kellogg's (NYSE: K) makes PopTarts, which won't pass the Disney guidelines. But Kellogg's also makes whole wheat Eggo frozen waffles. And what kid doesn't love waffles? General Mills (NYSE: GIS) owns Totino's Pizza Rolls, but they also own Green Giant and Nature Valley. The largest advertisers have a choice which products to show to children.

Getting away from the obvious food sector, there are still several other industries that could find an audience advertising to children. Family-friendly vacation destinations? What hotel chain couldn't come up with a clever marketing campaign convincing kids that they want to beg Mom and Dad to stay at their child-friendly hotel? How about fighting childhood obesity with ads for soccer balls and baseball bats? Dicks Sporting Goods (NYSE: DKS) I'm looking at you- this is the perfect place for you to woo your next customer. Kids already love a trip to Dicks to climb the rock wall, so why not advertise some of the other products to the kiddos as well?

Disney is still the place to be for advertisers, and it is still a safe place for investors as well. As long as there are children, there will be advertisements aimed at convincing children there is a widget they desperately need.

And until the day that the world ceases to procreate and produce children, Disney is a healthy stock to invest in. The stock is up an impressive 18% in 2012, and is one of the top performers in the Dow. The company brings in revenue from cable and satellite affiliate fees for programming (which includes ABC, ESPN, and the multiple Disney channels), film and DVD syndication, merchandising, and its theme parks. A small loss in one division- which may not even be a loss when the time comes- is hardly a reason for investors to be concerned.

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