Mouse Business 105: Disney, the Economy is Falling. What are You Going to Do Now?

To speak generally, there are really three main philosophies that the company can take: 1) Be Defensive. Hunker down and rely on the strength of the Disney brand to ride out the worst times and be around for when the economy recovers. 2) Be Aggressive. Seek to strengthen the company even if it means making bold moves which may hurt in the short term but could be extremely productive in the long term. 3) Be somewhere in the middle. Let’s look at perhaps the most fun scenario, an aggressive Disney.

You have probably heard the oft-repeated Warren Buffet quote “be fearful when others are greedy and be greedy when others are fearful.” This quote works just as well on companies as it does on investors. The market is down and companies are suffering, but while others may be cowering and being defensive is it possible to see Disney trying to be aggressive and make acquisitions. Even the most pessimistic of people would tell you that at some point the economy will turn around and when it does, Disney could be sitting pretty having weathered the storm and strengthened their “kingdom.”

Although Disney is typically a “defensive” company, the Wall Street Journal penned an article at the beginning of November suggesting that Disney should be aggressive and look into purchasing Electronic Arts, Inc. (EA). EA is a leading interactive entertainment software company worldwide, with products for video game systems, personal computers, cellular handsets and the Internet. EA has been hit hard in recent times and their valuation as a company has dropped 62% in just a few years time. An EA acquisition could definitely fit within the Company strategy: develop an Intellectual Property and then distribute it in as many mediums as possible. EA owns the popular Madden Football games and a slew of other sports related games which fit very well into Disney’s ownership of ESPN. But is this just speculation or is it really possible that Disney may be looking to acquire business properties right now?

Well, first, I think it would pass the “Walt” test. Every Disney fan always asks the question “Would Walt do this if he were still alive?” By acquiring properties, Disney would be bringing more things in house. It’s hard to argue that one of the keys to success for Walt was his belief in doing as much as possible himself and thus being able to reach his extremely high standards. One of the traits of Disney (and one which some may believe they have not held to enough) is the belief “We are Disney and we can do things better ourselves rather than having outside companies do it for us.” As long as the acquisitions fit within the scope and theme of the company it would seem to be a good think for fans to have Disney taking a more hands on approach on the creation of many of the properties they sell.

Secondly, the Bob Iger Disney has shown a willingness to be proactive and make moves. The acquisition of Pixar was obviously the biggest acquisition the company has ever made and Disney paid top dollar. Even the recent re-acquisition of some of the Disney Stores by the Company has shown their willingness to take back properties (although the Disney Store fiasco could take up a whole series of articles). Disney recently has shown that they are not afraid to make moves and there are some bargains to be had. Continuing with the EA example, the company’s worth a few years ago was approximately 19 billion dollars, today it is around 7 billion. Now a company losing that much value does not necessarily mean that it is a good idea to buy it, but it is a good example of how even solid companies are being hit hard by the economy.

The idea that Disney might be aggressive makes for great chatroom material, but it is not completely unbelievable. In this interview with CNBC, Bob Iger said that the EA rumors were just rumors, but he admitted that in this market there could be some good opportunities.

Admittedly, when I heard the EA rumor I was a little skeptical. But it did make me dig up my old Walt Disney World Explorer CD-ROM, 1998 edition. Looking at the broken CD case and worn box I said to myself, “This sure would be nice on Playstation 3”. If Disney could be aggressive, what would you like to see them do? What should they acquire? Or maybe you would prefer them to just stay defensive and stick with what they have? Share your thoughts in the forums.

Next time: How the economic crisis is affecting Walt Disney World.


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