Why Disney is a screaming buy now

By Jon Markman

Earlier this week, I stood in the rain in Miami for six straight hours to watch a football game, a rock concert, a multimedia show on football history and a celebrity interview. Although at times I questioned my sanity, those moments were fleeting because, like most of the 73,000 other people in the stands of Super Bowl XLI, I was having a blast.

Why was the Super Bowl so much fun, even though it was wet, crowded, wildly expensive, perverted by corporate interests and played by cookie-cutter pro athletes?

The answer reveals more about the state of sports and entertainment today than it does about me, and it should help you make a bundle over the next couple of years by betting on companies like Walt Disney (DIS, news, msgs) that deliver a virtual version of that experience via television, movies and theme parks.

Disney, which I think is a screaming buy right now, reported fiscal-first-quarter earnings last night of $1.7 billion on a record $9.7 billion in sales, blowing away expectations and lifting Disney above its media peers in ways old Walt could have only dreamed.

What we've lost: Sensory overload

If there is one thing that Disney understands more than any other company, it's the extent to which we are social beings hard-wired to crave companionship and thrills, no matter how manipulated. Yet the hours we spend enjoying live sports, arts and adventures with family and friends are diminishing, according to researchers.

So much of the entertainment that we experience today is done not only in leisure, from the comfort of our living-room couches, but also at our leisure, though the benefit of video recording devices.

A visit to an awesome American spectacle like the Super Bowl, though, gives you a taste of exactly what's been lost. It's so much more enthralling than it appears on television, which puts you at the mercy of the eyes and ears of cameramen and a studio director. No home TV theater can recreate the ear-splitting thrill of four fighter jets screaming over a stadium, the sound of a football hitting a kick returner's chest, the smell of the fireworks, the sheer energy of Prince's electric guitar played through a wall of 30-foot speakers or the dramatic visual development of a passing play on third and 10.

Disney and other broadcasters, such as CBS Corp. (CBS, news, msgs) and News Corp. (NWS, news, msgs), recognize that we want to share in that moment in some fashion anyway and have turned their creative genius on a process that corporate anthropologists call "disintermediation," or a way to fake the sports-and-entertainment consumer into thinking he is experiencing a major event -- and make a lot of money off the subterfuge. Entertainment is now one of the fastest-growing segments of the economy, and advertising sales are clocking in with 4.5% annual growth, well in excess of the broad economy.

Disney, the owner of broadcaster ABC and sports cable network ESPN, is the best at this effort and has become the most rewarded by investors. Yet it still has a ways to go, and I think the stock can double by 2011 if all goes according to plan.

Made only in America

How? Well, ever since the company jettisoned stuck-in-the-mud former Chief Executive Michael Eisner, Disney has become a pioneer in the distribution of entertainment into a dozen forms, each profitable in its own way, from broadcasting and cable TV to movie theaters, DVD players, personal video devices and cell phones. Yet because it has also recognized the value of gathering people in one place for some communal experiences, Disney also is making an amazing amount of money on its theme parks.

I could make the case, indeed, that Disney has become one of the greatest stocks to own in this era, much as Intel (INTC, news, msgs), Wal-Mart Stores (WMT, news, msgs) and Merck (MRK, news, msgs) were leaders of past decades. Through hard work, genius and a bit of luck, Disney's executives figured out that proprietary content and delivery systems -- that is, manufactured experiences and their conveyances -- would generate hundreds of millions of dollars in advertising revenue in the 2000s because they are among the few valuable things left in this country that cannot be commoditized or outsourced.

There is no cheap, Chinese-made or generic substitute for "Lost," "SportsCenter," "Monday Night Football" or "Pirates of the Caribbean," just as there wasn't in a prior era for Mickey Mouse or Donald Duck. There is only the genuine article, and it is something that relentless Disney marketers work hard to make you want in half a dozen different visual and audio forms, not to mention the theme-park ride, plush toy and ring tone.

 1 | 2 | next >