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Why Warren Buffett Invested in Disney (NYSE:DIS)

Why did Warren Buffett invest in Disney (NYSE: DIS)? The Warren Buffett Disney Investment has paid off handsomely. Buffett first invested in Disney in 1966.

Disney is a diversified worldwide entertainment company. It has five operating segments:

  1. Media Networks – this operating segment manages the ESPN, Disney, ABC Family and SOAPnet networks. These cable networks make money from fees paid by cable providers and in some of its networks, sales to advertisers.
  2. Parks and Resorts – this operating segmentmanages a variety of parks and resorts around the world, including the Disney World Resort in Orlando, Florida (25,000 acres), Disneyland Resort in Anaheim, California (500 acres), Tokyo Disneyland and DisneySea (500 acres), Disney Resort & Spa in Hawaii, and the Disney Cruise Line.
  3. Studio Entertainment –this operating segment produces and acquires live-action and animated motion pictures, musical recordings and live stage plays. The segment serves the theatrical market, home entertainment market and television market.
  4. Consumer Products – Disney has a variety of businesses under this operating segment: worldwide merchandise licensing (with properties such as Mickey Mouse, Cars, Winnie the Pooh, Toy Story and Disney Fairies), Disney Publishing (which publishes children’s books and magazines), Disney Retail (which operates Disney retail stores).
  5. Interactive Media – This operating segment creates and delivers branded entertainment and lifestyle content such as games based on the company’s studio entertainment productions.

Disney’s Competitive Advantage

Even more so than American Express, Disney carries enormous brand recognition around the world. The Disney brand name was worth an estimated $29.1 billion as of 2011 and was ranked the 9th most valuable in the world by Interbrand. Disney has been able to capitalize on this brand value in many of its operating segments.

Warren Buffett’s Investment in Disney

Disney was valued at only $80 million when Buffett bought his stake in Disney in 1966, although the company earned approximately $21 million in pre-tax earnings in 1965.

Buffett’s partnership made 20% on his Disney investment in a year, but in retrospect he regretted selling it so soon after, for he would have made much more if he simply held on. As he notes, “Had we kept it, that $5 million would have been worth over a billion dollars in the mid-1990s.”

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