Apple Should Buy Disney: It’s Too Big to Collapse And Better Layoffs Won’t Help.
Mar 31, 2023
Walt Disney has had a rough year, defined by better layoffs and activist uproar. As a result, several experts are once again recommending Apple as a possible buyer for the entertainment behemoth.
Laura Martin of MKM Partners is the latest in a long line of executives, including Disney (DIS) CEO Bob Iger, to stress the advantages of a potential Apple (AAPL) takeover of Disney.
The analyst explains why a deal would benefit both firms, ranging from the long-term worth of Disney’s content to Apple’s superior ecosystem. Neither business replied to a request for comment, and there is no evidence that they are in negotiations, but Wall Street may continue to fantasize.
Martin’s most compelling case for why Apple should consider acquiring Disney and Marvel is one that receives little attention in capitalism: how Disney indirectly shares the wealth of its most successful enterprises.
According to the expert, Walt Disney delivers comparable value for customers as Apple. The significant distinction is that Disney is at the heart of an enormous ecosystem that helps other firms that participate in it, which Martin refers to as “value leakage.” For example, while Disney attracts millions of people to movie theaters to see its films and to regions like Florida to visit its theme parks, it does not receive a percentage of popcorn and airline ticket sales or bookings to non-Disney hotels near its attractions.
On the surface, this may appear to be a disadvantage, especially compared to Apple’s all-efficiency. The iPhone maker captures virtually all of the rewards from the universe it created — up to 90%, based on market cap — and allows for very little “unplanned value leakage” that might help other firms.
Consider the non-Disney hotels and even competing theme parks in Orlando that gain from the influx of Disney guests or the New York companies that benefit when visitors watch a Disney performance on Broadway. There’s a reason why local governments and businesses desire to work with Disney.
Suppose Disney could somehow minimize its leakage to an Apple-like level. In that case, it might have a market worth close to Apple’s $2.56 trillion rather than its present $180 billion market cap, according to Martin. Its stock has dropped roughly 30% in the last year.
Martin suggests that Apple consider bringing Disney and its alleged “value leakage” into the fold and better layoffs. That’s because what Disney foregoes in potential revenue — which she estimates might be in the billions of dollars — it receives in the shape of allies.
“What’s better about the Disney model is that it collects powerful friends,” Martin writes. “We believe that Disney’s 100-year existence is in part due to the fact that third-party companies and governments don’t want Disney to fail because they themselves benefit from a thriving Disney.”
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If other companies are ready to go to bat for Disney, it pays to share the wealth in the long term. Despite not having Apple’s massive financial reserves, Disney has longer competitive advantage periods and bigger moats around its business because of its allies, she argues.
Thus, Disney can be considered one of the original “too-big-to-fail” companies – and one with lifelong superfans who are notoriously hard to find in the banking sector. On the face of it, what corporation wouldn’t want such a piece?
But recent political maneuvers in Florida have called that status quo into question, with some arguing that Disney’s size and wealth give it too much control over corporate and political decisions. Nevertheless, it is hard to overstate Disney’s importance to Florida, given its economic impact in the state’s core territory of more than $75 billion, a figure that is expected to grow as it recovers from the pandemic.
In the end, few shareholders would argue that Apple should modify its successful business model — even though it has the wherewithal to do so, with recent free cash flow exceeding $111 billion — or that if it buys Disney, it should also acquire an airline.
Yet, no corporation is an island, and Disney has shown particularly effective at forging bridges. That might be a message from one of its children’s shows — and often, the simplest teachings are the most essential.