Disney’s higher capital expenditures are driven by the company’s investments in parks, hotels and cruise ships. In comparison, other media companies require fewer initial capital outlays. News Corp spends less than Disney, but slightly more than Time Warner or Viacom as a result of its print newspaper business.
Below we compare the capital spending trends of each of the four big media companies in greater detail.
Disney Spends $1.75 Billion in Capital Expenditure
Disney spent $1.75 billion or about 25% of its EBITDA (operating income excluding depreciation and amortization) in 2009, mainly attributable to its expenditure on capital intensive theme parks and resorts.
Disney is a highly diversified media company and spends money on cable TV, broadcast TV, theme parks, resorts and movie studios. About 67% of Disney’s capital expenditure, however, can be attributed solely to its parks and resorts business.
We expect Disney’s capital expenditure will continue to increase and reach $2.2 billion in 2011, as Disney continues to invest in expansion and construction projects for its parks and resorts business.
Below you can see how a change in domestic parks & resorts capital expenditure (as % of EBITDA) can impact Disney’s stock.
News Corp Spends $1.1 Billion in Capital Expenditure
News Corp spent close to $1.1 billion, or 23% of EBITDA, in 2009 mainly in its newspaper and TV businesses where the company is a leading player. News Corp owns newspapers like the Wall Street Journal and its Fox media brand includes the Fox broadcast TV network as well as cable TV networks such as Fox Sports, Fox News and FX Network.
As of 2009, about 35% of News Corp’s capital spend was directed at its newspaper and services businesses, while TV entertainment accounted for 38% of its capital expenditure. News Corp is not as capital intensive as Disney; however it does incur significant capital expenditure from the newspaper business alone.
We expect News Corp’s capital expenditures to pick up slightly and reach a high of 27% to 28% of EBITDA, as it continues to invest more in the newspaper and TV entertainment business as the economy improves.
Time Warner and Viacom Together Spend Less Than $0.8 Billion
Due to the absence of capital intensive businesses like theme parks, resorts and newspapers, Time Warner and Viacom have much lower capital requirements compared to Disney and News Corp. Time Warner spent about $600 million and Viacom spent only about $140 million in capital expenditure in 2009.
These expenditures are primarily aimed at cable network programming and movie studios. However, Time Warner’s higher capital requirements compared to Viacom are attributable to its larger overall size and to the additional spend associated with its magazine business which accounts for about 15% of its stock value.