According to Bloomberg, The Walt Disney Company (DIS) is planning to slash jobs of around 5% of its employees or more than 200 people at its film division in June, as the company is looking to reduce costs at its Studio Entertainment segment.
The move was inevitable and is likely to be followed by other studios as the sales of DVD have been plunging due to the shift in consumer demand. An increasing number of customers now prefer to use the on-demand TV services and other digital mediums at home for watching movies.
Moreover, the Studio Entertainment division of Disney is struggling badly due to the sluggish performance of the worldwide home entertainment and worldwide theatrical distribution coupled with higher film cost write-downs. Revenues at this segment came in at $1,340 million in the second quarter of 2011, reflecting a sharp decline of 13% versus the year-ago quarter. Operating income also plunged 65% to $77 million in this segment.
Further, Disney realigned its distribution and is focusing on increasing its production from Marvel and Steven Spielberg’s DreamWorks Studios.
Disney’s Studio Entertainment segment produces and acquires live-action and animated motion pictures, direct-to-video programming, musical recordings, and live stage plays. This includes Walt Disney Pictures, Touchstone Pictures, Disneynature and Miramax under theatrical and home entertainment; Walt Disney Records, Hollywood Records, Lyric Street Records, Buena Vista Concerts and Disney Music Publishing under music group, and Disney Theatrical Productions and Disney Live Family Entertainment under theatrical group. During fiscal 2010, this segment contributed 18% to total revenue.
Walt Disney is one of the world's leading diversified entertainment companies. Moreover, the company commands a formidable portfolio of globally recognized brands, primarily its namesake brand Walt Disney, followed by ABC, ESPN and Marvel Entertainment. These renowned brands offer a strong competitive edge to the company and bolster its well-established position in the market against major players like News Corporation (NWSA) and Time Warner Inc. (TWX).
Currently, we maintain a long-term ‘Neutral’ recommendation on the stock. Moreover, Disney’s shares has a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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