Randomly Noted

It sounds like there are far fewer people visiting places like Cinderella’s Castle.

Walt Disney Co. this afternoon reported strong third-quarter earnings, with a profit increase of 40%. But one part of the business that continued to show weakness was in the parks and resorts segments. Disney in part blamed the calendar – it noted that Easter was April 4, which would have pushed some of that business into the earlier quarter. But it is also worth noting that the Parks and Resorts business in the 2Q saw a 12% year-over-year decline, so, clearly it has more to do with fewer families travelling. Probably post-recession hangover.

The company did note that those who are travelling to the parks seem to be spending more money.

One of the cases the Securities and Exchange Commission filed today against alleged insider traders just leaves you wondering where have people been the past few years. This is the case involving a Disney administrative assistant who apparently had access to press releases before they were distributed – and in particular, earnings releases. So, she agreed to pass them along to her boyfriend who ahead of time would contact 20 or more hedge funds to see if they were interested on trading on inside information.  He contacted them via anonymous letters. One of the funny things about the SEC press release on this is that it talks about how 20-plus hedge funds were sent the letter but how only several of them contacted the SEC. Hats off to those several but what about the others?

The SEC refers to this as a brazen insider trader case. I suppose one could find stronger words: maybe dumb? Glad the Feds nailed these guys but if you want a good read about “Amateur Hour Comes To Wall Street,” well, here it is. See the SEC complaint and press release by clicking here.

DJN colleague Nat Worden’s story about the media industry’s renewed affection for content is worth a look. The piece, “Big Media Renew Love For Content,” notes that “the industry’s titans are coalescing around a risky gamble on the old adage, ‘content is king.’” He notes News Corp., our parent company, along with Time Warner and Walt Disney share a strategy “to produce premium media content in a bet that consumers are ready to pay for it online.” It’s risky, sure, but it’s the only way forward for content producers – and, frankly, for readers who cherish the type of news and non-news content which costs money to produce. I also think it’s not as risky as some may think. As the economy recovers, and as CEOs such as Rupert Murdoch speak out publicly and often about the perils of giving away valuable content, customers will increasingly accept that it comes with a price.

Eduardo Kaplan and Paul Vigna discuss the significance of Disney’s merger deal with Marvel, Baker Hughe’s acquisition of BJ Services, encouraging news from the Chicago Business Index and China’s equities sell off.

What do Disney’s bid for Marvel Entertainment and Baker Hughes’ bid for BJ Services have in common? Disney-Marvel is all about cartoon content; Baker Hughes-BJ is about oil services. Two very different worlds, the one fun, the other gritty – although Marvel will introduce grit to Disney’s Magic Kingdom. More on this below. There are some parallels in the two deals. In each case, a bigger company is filling a glaring gap, and is doing so at a crucial inflection point in the economy: assets in theory remain fairly cheap but possibly not for much longer as consumer confidence improves, manufacturing output increases and the price of oil gets support. First, let’s tackle Baker Hughes’s $5.5 billion acquisition of BJ Services. The cost savings should be fairly easy to pull off, assuming the merger is managed well: Baker Hughes estimates cutting overlapping corporate overhead costs will help achieve $75 million in savings in the first year, with more savings thereafter as other parts of the combined company come together. The goal is to create a more comprehensive one-stop provider of services to oil companies, especially those tackling major projects in far-flung locales where dealing with a single service provider is far easier than juggling several. Baker Hughes-BJ creates a formidable competitor to the likes of Halliburton and Schlumberger, as DJN colleague Angel Gonzalez notes. In the $4 billion Disney-Marvel pact, we have the owner of cuddly cartoon characters adding a world-class stash of edgy cartoon heroes.  So, Disney aims to become a one-stop cartoon shop for the tender 3-year-old and tough pre-teen, male and female alike. (Disney tends to skew female at present.) There are differences in price. Disney is forced to pay a fat premium for Marvel because the latter has so brilliantly preserved its characters’ edge and freshness. At first blush Baker Hughes/BJ seems priced more reasonably – a reflection of the economy’s remaining vulnerability: manufacturing is improving but very slowly, so prices of commodities such as crude oil are still on the soft side. That said, the market thinks Baker Hughes may be overpaying and its shares are down today. Disney shares are down a bit, too, as people worry about its credit rating, among other things. Certainly, Baker Hughes and BJ are two peas in a pod compared with Disney and Marvel – two very different media firms. As my DJ Market Talk colleague Max Murphy points out, Disney’s traditional constituents may be in for a shock once Marvel is absorbed into Walt’s culture: In Marvel’s universe, they write, “people die, sometimes use drugs and occasionally reveal themselves as homosexual, among other scenarios meant to create a gritty true-to-life world for its heroes and villains to inhabit. Will topics like genocide and racism prove taboo for the Mouse House, and will DIS sanitize comicdom to the horror of legions of devoted readers?” I would guess Disney’s bosses are too smart to harm Marvel. Disney will change.