Market Overview

Disney's Dream: Eternal Copyright

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When crowd-powered website Reddit sparked an Internet war against the Stop Online Piracy Act (SOPA), they claimed that the bill demonstrated "a lack of understanding of the way the Internet functions." Critics of the law joined Reddit's users in arguing that the law would effectively give the U.S. government power to create an Internet blacklist. Harvard scholars summoned comparisons to China and commentators on Politico noted that the law would prove to be an "election liability" to those who backed it, no matter how it may please the Hollywood lobby.

One of the quiet supporters of SOPA is the Walt Disney Company (NYSE: DIS), a stalwart in the copyright wars of modern America. Disney is keeping a low profile in the debate for good reason. The company was the most prominent supporter of the Copyright Term Extension Act spearheaded by then congressman Sonny Bono, a man who got rich off of the sales of copyrighted music. Disney's support of the law yielded the nickname "The Mickey Mouse Protection Act," which went into effect in 1998 to protect works made in 1923 or afterwards. Mickey Mouse was created in 1928, and the copyright on his character will last under current legislation until 2023. However, since the character is also trademarked, Mickey will be protected from copycats for as long as Disney continues to use him.

Disney has good reasons to protect its characters, even if it has been criticized for going to extreme measures to protect its legal rights. With Chinese developers planning to create a fake Disneyland in China, the company sees piracy as a substantial threat to its bottom line.

Opponents of SOPA and supporters of fair use laws may be right to dismiss such fears as sheer paranoia, since the company's profits continue to rise. Last quarter saw an 18 percent year-on-year increase in earnings, with diluted EPS up to 80 cents. Disney's lobbyists might counter that such earnings are due to greater operational efficiency and lower operating costs, since revenues from its film division fell last year. Studio revenues fell for the year from $6.7 billion in 2010 to $6.35 billion in 2011, and were the only division to disappoint. Last quarter, Disney saw a 16 percent drop in studio revenues, down from $1.93 billion to $1.62 billion, prompting a market sell-off despite strong earnings.

Critics could quickly respond that the results have more to do with the quality of Disney's movies. Last year, Mars Needs Moms and Cars 2 failed to impress moviegoers as much as the prior year's Tron: Legacy, Toy Story 3, and Alice in Wonderland, which were virtually guaranteed to attract attention by riding the reputations of cultural icons that hadn't worn out their welcome with the American public.

The company's historical significance to America is a double-edged sword. On the one hand, the relevance of Mickey Mouse to twentieth-century Americana has prompted historians to join consumer advocates in fighting the company's vigorous copyright protectionism. On the other hand, the company's cultural significance gives it a cache of reliable names that it can capitalize on. Indeed, the prominence of Mickey Mouse, Winnie-the-Pooh, and other characters helped the company's parks and resorts revenue to grow by 10 percent in 2011. Copyright laws have allowed it to build a monstrous brand around its intellectual property, so the company will naturally remain terrified of the challenge that piracy poses to it.

With a younger generation more accustom to distributing information freely along digital platforms, Disney will see less sympathy towards its protectionism in coming years. Especially when the company's multi-billion profits contrast sharply with wage declines and growing inequality that are no longer America's dirty little secret, thanks to noisy Occupy Wall Street demonstrations. Disney would be wise to face the reality of piracy and find twenty-first century strategies to augment its income streams, instead of lobbying for an eternal copyright that will just drive more embittered wage earners to piracy.

Posted-In: Earnings News Events Best of Benzinga

 

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