Why is Disney the Biggest Studio in Hollywood?

Yutai Han

11/21/17

 

This post will examine the source of Disney’s success. After the Q4 earnings report came out, commentators said that Disney could still be a stronghold for years to come. That is because Disney’s unique advantage lies in its ability to create iconic animated stories that bring warmth and joy to children and their family throughout the world and the ability to turn the stories into a profitable package, a utopian wonderland of magical calling to children with rich imagination.

 

Disney’s Q4 earnings report show that their profit from studio entertainment dropped 21%, and other revenues such as media networks dropped as well.

The reasons are twofold. First, audiences are abandoning their cable TV subscription. Disney’s affiliate company, ESPN, is going through a turbulent transformation to launch ESPN Plus, part of a $1.2 billion investment of streaming services to compete with Netflix. Second, this year is a relatively small year for Disney’s film business. Last year, Zootopia and Finding Nemo 2 hit the worldwide theater with a craze, but this year Cars 3 wasn’t too successful. On the other hand, big productions such as Thor 3 and Star Wars: The Last Jedi are released in the end of the year and they are not counted in Q4’s earnings report.

 

For a lot of these films, the profit brought by selling merchandise can sometimes trump the box office itself. For example, Frozen has sold 3 million princess dresses, profiting $450 million. Since last year, Shanghai Disneyland has sold over 1 million fluffy animals and among them, the bestseller is the magic wand and the Minnie Mouse hairband.

 

The only increase of revenue came from theme parks by 6%, quarter to quarter. According to the earnings report, this year marks the 25^th anniversary for the Disneyland at Paris and revenue from the Disney hotels saw some increase.

 

Therefore, in turbulent times, Disney’s theme parks are still their main stronghold. Although the domestic revenue was impacted by the hurricane season, but overseas revenue saved it. I haven’t been to the Shanghai Disneyland myself but through several positive accounts that I’ve read online, I’m convinced that it’s comparable to any top theme park experiences. It’s somewhere that you can immerse yourself fully into the beautiful fairytales created by Disney and Pixar, and the exciting worlds of Superhero movies created by Marvel Studios. No wonder that the newly-opened Shanghai Disneyland is the top destination for families with kids. The Disneyland at Shanghai opened its door to Chinese about a year and a half ago, and in a recent report (in Chinese) conducted by the Shanghai Information Center, Disneyland has welcomed over 11 million people, bringing a growth of 0.44% GDP to Shanghai as a city, and creating some 62 thousand jobs. In the same time, the opening of Disneyland helped the city boost its overall tourism industry by a growth of 6.9%, as $25 billion. The report concluded in praising Disneyland as a leader of the tourism industry that brings significant economic improvements.

 

I read that Disney’s attention to detail was surprising to Chinese contractors, but at the same time, Chinese contractors wanted to cooperate with Disney because they’re hoping to learn from Disney’s high standards. For example, before the construction of the Disneyland, Disney formed an academy of sculptors and evaluated them on their work. Disney hired them only after they’ve qualified for the examination. This is part of the effort of Disney to recreate the world from their movies that the visitors can immediately immerse themselves into.

 

In 2016 consumers spent around $30 billion on video games. Historically, video game consumers spent that money on a single game that unlocked all of its features. However, more recently, video game developers are distributing free-to-play games on the App Store, the internet, Steam, etc. in exchange for introducing microtransactions.

Microtransactions are transactions within a game that allow players to unlock virtual items that help them progress in a game or make their character look better with weapon skins.

With the advent of the App Store, small game developers saw this as an opportunity to sell their games for free but work in transactions so that players could add to the game. Clash of Clans, despite being a free game on the App Store, made $2.3 billion dollars last year. Microtransactions go beyond the App Store, too. League of Legends, a free game made by Riot Games, made $1.6 billion in 2015 off of Microtransactions.

Microtransactions are leeching into full-price video games as well. The new game, Star Wars Battlefront II, was released with a lot of controversy. The $60 dollar game (the deluxe edition costs $80) was going to be released with a microtransaction system. To get loot crates, which can unlock heroes like Darth Vader and Luke Skywalker, and help a player progress through a game, people would have to pay up. Electronic Arts removed that system before the game came out, after public outcry by gamers and a post which earned EA the highest number of downvotes ever on Reddit.

For big box games like Battlefront, the idea is to create a continual revenue stream for a game even if its initial price depreciates. Within a year some games can lose more than half of their value as new games come out and replace the old ones, similar to cars, though at a much faster rate.

Microtransactions employ behavioral economics. There are a whole slew of tactics, but there are two main ideas that trick people. First, they have weird conversion rates from dollars to an in-game currency, so it is hard for players to know how much money they have spent. Second, developers treat microtransactions like gambling. Players can put in money to get that in-game currency in the hopes that when they unlock a loot box they will get a great prize.

Microtransactions are likely going to be around for a while, and as artificial intelligence takes off, they will probably become more specified to a person’s play style, the friends they have online and a whole host of other variables. Gamers have at least staved off microtransactions in Battlefront, for now.

In addition to the belief in the Second Amendment Right, economics in the firearm business could also a reason for the difficulty of implementing gun control in the United States.

Firearms industry is a billion-dollar business. According to the IBISWorld, by June 2017, the revenue for guns and ammunition manufacturing industry is $13.3 billion with $1.0 billion profit. According to the latest Annual Firearms Manufacturing and Export Report in 2016, there were 11,069,333 pieces of firearms, including pistols, revolvers,rifles,shotguns, produced in that year with only 3% of them being exported. The rest of them stayed in America. According to Firearms and Ammunition Industry Economic Impact Report 2017 , there are 301,123 jobs related to firearms industry. The industry also had over 51 billion dollars impact and generated over 6.5 billion taxes.

In order to keep this business running, Center for Responsive Politics said in 2016, gun lobbyist spent over $10 million to protect gun rights. Moreover, gun owners also fear that their guns would be taken away or they would be banned from buying guns. he National Shooting Sports Foundation (NSSF)  said since Obama took office, the gun industry has grown 158%. The CNN has called Obama “the best gun salesman in America.”

Last year, since people were afraid that Hillary Clinton would win the election and take away guns, FBI said the background checks for buyers reached record high during the 2016 Black Friday. Now with Trump in office, according to the National Shooting Sports Foundation, the background checks in July 2017 drop 25% to 907,348, the lowest since 2013 because run owners are more confident about their gun rights. Due to the low demand for guns,  gun companies like Sturm Ruger & Company also experienced drop of their stocks, according to a Fortune article.

Moreover, since people fear a more strict regulation would be put on guns after mass shooting, gun companies tend to see a rise of sales after these tragedies. After Sandy Hook shooting, San Bernardino shooting, and Las Vegas shooting, gun shares all expressed a boost.

 

Tesla continues to be a topic of conversation. “What is Elon’s next move?” “Is Tesla even making any money?” “Why are they so slow to produce?” A multitude of questions continue to soar in from consumers and business professionals when wondering if they should make a purchase or investment in the infamous sustainable luxury vehicle.

After Tesla’s start in 2003, it’s been slow to hit the ground running and make money. Tesla’s stock continues to have highs and lows — starting at $19 a share and going up and down between $100-$300 dollars. According to Wired, “2017, however, is the formative year to see whether Tesla becomes the unbeatable car company, or just another company that tried to beat the competition but failed.” With excitement surrounding the release of Tesla’s truck in 2019, it could turn out to be a make year rather than a break year after all. Tesla’s stock went up following the announcement of the truck and is up nearly 50% so far this year.

On top of that, Musk is already seeing pre orders roll in from WalMart, Meijer, and J.B. Hunt to name a few. The first issue that comes to mind, though, is how are these trucks going to be of much use beyond small routes? As an electric car, especially a self driving car, it will run out of energy after a couple hundred miles. That means that on long truck hauls a lot of time ends up being added to the commute. Essentially, the truck will only be able to add  value to routes that are local. While this does still reduce emissions, it still doesn’t fix the issue of long commuter hauls unless Musk has a new idea on charging station efficiency and productivity — this could take even more money and more time. Considering the lack of charging stations on these commutes and the slow history of Tesla production, will Elon Musk even be able to roll out this truck by 2019? In the past, Musk has fallen short on lots of promises and production has been late up to two years past the publicly announced date of release. There is a lot of pressure on Tesla Motors and especially Elon to perform. So many people are rooting for Tesla, especially the sustainability behind it, but at the end of the day its hard to know if the sustainability model behind Tesla is worth fighting for, or profitable. The headlines are saying one thing, yet the sales of Tesla are saying another. They are reaching record high’s with profit margins equivalent to that of Apple (25% margins) — this is huge for the auto industry when it usually sees a break even number or a loss in profit.

So, what’s the big idea behind this truck? In order to understand and predict the future of yet another Tesla hyped release, one must know what makes this truck so amazing. Tech Crunch says that the Tesla Semi, “will go 0 to 60 mph in just 5 seconds, which is incredibly fast compared to a diesel truck. It can go 0 to 60 mph towing 80,000 lbs, its max tow load, in just 20 seconds. It can go 65 mph up a 5 percent grade, which is way better than the 45 mph max that a diesel competitor can do. And for range, it can go 500 miles at highway speed, and less than 80 percent trips are at 250 miles. It also has a better drag coefficient than a super car thanks to its extremely aerodynamic design.” Now, I am sure that all of that sounded like a bunch of numbers and words that made no sense, to me too. The most important thing to note, however, behind all these facts is that it truly is bigger, better, faster, stronger. The Tesla Semi will get the job done, according to Musk, because of it’s aerodynamic design. The features of the truck are like nothing we have seen before and its deemed safer than any other normal diesel truck we see on the highway. It’s capabilities are endless and all outlined in the TechCrunch article here.

While consumers and investors continue to feel good and bad about Tesla, it is still being talked about and stirring up controversy and at the end of the day, that means you’re doing something right. The innovation and ability behind Elon Musk is unprecedented and has the ability to truly change the world. If accomplished right, we could be looking at a game changer for our economy and the longevity of our planet. It’s time to continue to sit back, relax, and see what these automatic driving cars can achieve.

https://www.wired.com/2016/12/2017-will-year-tesla-reigns-supreme-finally-flops/

http://money.cnn.com/2017/11/17/investing/tesla-semi-orders/index.html

This is Tesla’s big new all-electric truck – the Tesla Semi

http://www.businessinsider.com/what-tesla-is-doing-right-2017-11

 

As baby boomers reach retirement, millennials are now reaching their prime working and spending years. Over the next five years, the purchasing power of millennials is projected to increase 133% from $600 billion to $1.4 trillion. With the millennial generation being the largest of the generations in U.S. history, their impact on the economy will be significant.

Millennials grew up during a time of major technological advances, globalization and economic disruption. Because of this, they have a very different set of behaviors and experiences.

Millennials came of age in the midst of a lagging economy, and many carry large debt loads, largely from college tuition. Consequently, this is why millennials tend to focus on fulfillment and meaning in their lives. The also prefer to sacrifice money for convenience, too.

The effects the 2008 subprime crisis had on the economy delayed millennials’ ability to “grow up”—many have delayed buying houses, having children and making large purchases, such as a car. For the first wave of millennials (those born before 1990) who could find jobs, those jobs were less than well-paid. Due to the lack of financial autonomy, for the first time since 1960, 31.6 percent of people aged 18 to 34 are still living with their parents.

Millennials, also known as Gen Y, are moving to cities straight after college. For the first time since the 1920s, U.S. cities are growing faster than everywhere else on the country combined. This migration is driving the success of the economy.

The trend is impacting transportation, housing, and home ownership. Millennials are using public transit 40 percent more and cars 23 percent less. They are twice as likely to participate in the “sharing economy”, like ride-sharing and apartment rentals.

When it comes to consumerism, millennials are skeptical of advertising, and don’t rely on traditional marketing. Trust is vital to earning their business. Many conduct research through the internet and social media to learn about a product.

By 2020, 30 percent all retail sales will be to millennials, said CEO of “The Robin Report” and co-author of “The New Rules of Retail”, Robin Lewis.

With changing spending behaviors and habit, retailers have been forced to approach the millennial market differently to baby boomers. Convenience and flexibility are important to millennials. In response, many retailers are implementing news ways of payment and providing unique experiences to cater for Gen Y. Examples of this are self-checkout kiosks and paying with their mobile device instead of having to take out their wallets.

Another aspect that millennials want from retailers is a personalized experience. To cater for millennials shoppers, retailers have had to get creative. Some well-known examples include Coca-Cola replacing their logo with the most common names, and Nordstrom opening a store with no merchandise. Instead, stylists pull stock from other mall-anchored stores and its website.

If one thing is clear from analyzing millennials’ spending habits, it’s that their love for technology, convenience and experiences will help grow the economy. These factors will be drive competition within many sectors and industries, and if companies don’t keep up, they risk going out of business. This is the new reality for producers of goods and services.

References
http://www.businessinsider.com/top-brands-are-marketing-to-millennials-2013-8?op=1
http://fortune.com/2015/05/27/7-facts-every-business-should-know-about-millennials/
https://investors-corner.bnpparibas-am.com/investment-themes/please-mind-generation-gap/

Ports are obviously a very important aspect of trade. Having large ports in big trade cities makes the process of importing and exporting a whole lot easier. Since ports are a big factor in economic value, they have become increasingly important. So important, in fact, that the main port in Buenos Aires, Argentina just got cleared for a revamping project of $200 million dollars to help improve the conditions, size, and value of the port.

Source: Los Angeles Times

Because the port of Buenos Aires is in a heavily populated area, they continue to receive more and more trade imports to keep up with their economy. This revamping project will not only allow Argentina’s ships to get access to more trade countries, but also increase capital during cruise season. A win win situation. That being said, they are using a lot of their revamping money to turn their port into an experience for consumers. They are now offering a variety of services including but not limited to transportation services and restaurants (there are no further details on what these services will do besides cater to cruise ship goers). Argentina is utilizing their port in a really strategic and effective way so that they can garner more trade access as well as appeal to tourists coming in and out during cruise season.

Soure: http://www.cruisemapper.com/ports/buenos-aires-port-103

A big part of the improvement plan, according to Gonzalo Mórtola, the head of the General Ports Administration (AGP), “is to make ports self-financing so that the state no longer has to provide any money for them” (portstrategy.com) The way he will do that, however, is still not announced to the public.

Before the improvement plan was announced, Argentina was already known for having a very strong port system. It is one of the strongest port contenders in Latin America and the Caribbean. In fact, in 2013 it joined the Green Awards ports program: “The Green Award is well-known in the maritime world for its reputable certification of ships that apply the best practices and exceed the industry statutory regulations in terms of safety, quality and environmental stewardship.” Argentina earned the first Green Award port in South America, and continues to ensure that they effectively maintain their Green Award efforts. Because they are a part of this, they receive a 10% discount on vessel dues for their Green Award ships. For Argentina, and Buenos Aires especially, this a big feat considering that where the port is located is a very metropolitan area. The port is putting forth its best efforts to maintain the greater good of the population within that area, and the country as a whole, and ensuring a clever and strong revamp in order to gain more global capital.

With the improvement plan set in place it will be interesting to see what this does for Argentina’s economy. In fact, seeing as European trade and Latin American trade don’t even compete, they should consider banning together and coming up with ways to innovate and ensure the utmost efficient level of import and export trade. After all, with the approval of a plan such as this, Argentina should get all the advice it can get to ensure it makes the right moves and builds out the right strategies.

http://www.latimes.com/travel/cruises/la-tr-cruises-argentina-port-improvements-20171029-story.html

http://www.portstrategy.com/news101/world/south-america/all-change-for-buenos-aires

http://www.greenaward.org/greenaward/703-buenos-aires-is-the-first-green-award-port-in-south-america.html