Walt Disney Co. (DIS) hosted multiple business sessions on Thursday with Street analysts at the Disneyland complex in Anaheim, California and tackled a myriad of strategic issues facing both the company and the media sector in general, at its 2011 Investor conference.

Mickey Mouse is a cartoon character who has become an icon for Walt Disney Co. In late 2009, Walt Disney said they will begin to re-brand the Mickey Mouse character by putting a little less emphasis on his pleasant, cheerful side and reintroducing the more mischievous and adventurous sides of his personality, starting with Epic Mickey.

RBC Capital's View

Disney chose to focus more on thematics (technology and brand/franchise management, etc.) rather than offer specific guidance around the financial impact of themes, said David Bank, an analyst at RBC Capital Markets.

Bank said emphasis over the past ~12 months has been to collapse window-oriented marketing and distribution operations into more IP/content-oriented operations (one group handling all windows) while having greater coordination for franchise exploitation across platforms (studio, consumer products, etc.).

Bank said the process will likely intensify over the next few years as Disney will focus more on its owned franchises at the studio (relying on Marvel, Pixar and Disney Live Action) where retail sales from IP can be 3 to 5 times higher, even on blockbuster content. In other words, Disney will make content based on its owned franchises/brands or won’t make it at all.

Unowned franchise Alice in Wonderland (6th largest global Box Office ever) generated about $1.6 billion of retails sales (almost all Box Office) versus owned franchise Toy Story 3 (5th largest global Box Office ever) that generated $9.8 billion at retail.

Bank said that as technology behind home video shifts, Disney will focus on margin upsell. By using bundled packages (consumer products and DVD) as well as a cloud-based content storage ecosystem, Disney will try to incentivize consumers away from low margin CPG media rental to CPG and digital EST ownership. Keychest and Disney’s Studio All Access platform will become increasingly important to relationship with consumers.

Bank expects a de-emphasis of traditional console-based gaming to more social and mobile-based games. Additionally, expect all online-based platforms (online O&O and “off-net) to emphasize more personalized approach in which Disney uses consumer data to more effectively target content and products to end user.

Management indicated online TV initiatives like ESPN or Hulu have been additive to overall viewership and cord cutting was more mirage than fact. Additionally, Disney has willingness to explore “full freight” online video distribution to supply its bundled channels to a new online-only player, as long as pricing is comparable to the existing MSOs and other major channel providers are participating.

Caris' View

This was the first time we could recall Disney hosting an analyst event that did not include a quarterly earnings release, and so with Disney's fiscal first quarter 2011 print out of the way, plenty of air time was lent to the value of franchises, which in turn, given the number of franchise properties set to be leveraged over the next 7 quarters, allows us comfort is raising estimates for 2012, said David Miller, an analyst at Caris & Co.

Miller said he had prognosticated prior to this event that the core reason for Disney holding the event in the first place was to highlight the changes at California Adventure (DCA), and that was indeed the case.

While there was no formal hard hat tour, investors were indeed struck the vastness of these various initiatives, the most aggressive of which is the Carsland attraction, which supplants the old Timon parking lot and which encompasses a full 12 acres.

Other major projects include a new $100-plus million animatronics-based, under-water ride themed on the Little Mermaid franchise, and a full refurbishment of the old Disneyland Hotel, just adjacent to DCA. The Carsland attraction, when it opens summer 2012, will itself encompass 3 different rides, one of which will be Radiator Spring Racers, which will be similar in feel to the Test Track attraction at Epcot Center in Florida.

Another topic management tackled, the subject matter of which did not surprise Miller at all, was the state of the film business.

Since the ouster of Dick Cook, the long time Chairman under the Eisner regime, Disney has been slowly and steadily eliminated the mid-range negative cost project ($55 million to $80 million), and instead biased capital allocation to either the mega-cost franchise picture that generates mass appeal and uplifts fundamentals at all the other units (Pirates of the Caribbean, Pixar, Marvel, etc.), or to the $25 million to $30 million negative cost film which can easily beat its cost of capital by achieving quick profitability in the theatrical frame.

Suffice to say, that 'spread' is likely to become even more accentuated, as Disney was able to clearly justify the return on invested capital (ROIC) of franchise properties once the IP associated with those properties is piped through Disney's higher margin distribution platforms such as licensing and social gaming, said Miller.

With that as backdrop, Disney will have the benefit of 6 tent-pole, franchise films, released over the next 7 quarters, which the company will not only exploit on the Studio line, but within Disney's less glamorous, yet ultra high margin businesses as well, such as Consumer Licensing and Interactive gaming. Those franchises are Thor, Captain America, Cars 2, The Avengers, The Muppets, and Monsters Inc. 2.

Given such a IP-heavy slate, that forces Miller to revisit his 2012 core earnings assumption and so he is improving 2012 EPS estimate from $2.94 to $3.06.

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