by Joe Shea
American Reporter Correspondent
May 11, 2007
ECONOMIST VALUES POOH RIGHTS AT $12 - $15 BILLION
LOS ANGELES, Calif., May 11, 2007 -- The 16-year legal morass surrounding royalties owed by Walt Disney Studios on U.S. and Canadian television and merchandising rights to Winnie The Pooh came into sharper focus today as the company that owns the lucrative rights, Stephen Slesinger, Inc., revealed that an independent economist hired to quantify them valued the rights at $12 to $15 billion. That staggering sum would be at risk at trial if ongoing settlement talks ordered by a Federal magistrate - first revealed in The American Reporter - fail to resolve issues between the two companies.
Quant Economics, Inc., a San Diego firm that applies econometrics and quantitative analysis to intellectual property matters, conducted "hundreds of hours of detailed analysis and estimates" of rights licensed by SSI to Disney for the use of Winnie the Pooh are valued at between $12 and $15 billion of Disney's $80-billion market value. Winnie the Pooh rights represent 14 to 18 percent of that value, the Quant analysis says.
Quant said SSI's Pooh rights yielded Disney EBITDA (i.e., earnings before interest, taxes, depreciation and amortization) of between $1.2 and $1.5 billion in 2006. Disney's total EBITDA in 2006 was $8.4 billion.
Those numbers are consistent with earlier estimates of Disney's Pooh-related income, and with the reported income SSI currently enjoys, which is estimated at between $800,000 and $1.2 million per month from sales of Pooh-branded merchandise around the globe. Disney Stores and theme parks account for most of that income.
In Disney's Form 10-Q for Dec. 30, 2006, the studio said that "Management believes that it is not currently possible to estimate the impact, if any, that the ultimate resolution of these matters will have on the Company's results of operations, financial position or cash flows."
Now, it appears, a valid estimate is on the table. While the studio is required by the SEC to report potential costs of litigation to shareholders, it has historically been slow to do so in the Pooh matter, possibly fearing that other litigation over non-SSI characters cand rights could be negatively impacted.
"Given the substantial exposure confronting The Walt Disney Company, a prudent measure by the senior management of Disney, including their CEO and CFO, would be to scrutinize the royalties paid to Slesinger and remedy any noncompliance with the reporting requirements of the 1983 Agreement between Disney and Slesinger," said Ryan Sullivan, Ph.D., President and Chief Economist of Quant Economics. "Conversely, I would recommend that Slesinger do the same, and carefully review the royalty statements Disney presents to them."
Sullivan is a respected and widely-published economist who has testified as recently as Wednesday in unrelated high-stakes intellectual property cases. In a brief telephone conversation with The American Reporter on Thursday, he declined to name clients of the year-old firm.
In a press release, SSI said that "The high profit margins realized by Disney in its character-based business properties combined with the popularity and success of Winnie the Pooh solidify Winnie the Pooh's role as a critical contributor to Disney's value in the marketplace.
"In addition, to being the top character in Disney's high-margin consumer products arsenal, Winnie the Pooh pervades Disney's other business segments including media networks, parks and resorts, and studio entertainment."
Stephen Slesinger, Inc. holds U.S. and Canadian broadcasting, merchandising and other rights to Winnie the Pooh Characters and has licensed certain of these rights to Disney, mostly acquired more than 75 years ago from Pooh author A.A. Milne in what was probably the first major "branding" deal.
The heirs to Stephen Slesinger, who died in 1954, won the latest round in their battle with Disney just months ago in the U.S. Supreme Court, when Justices declined to hear Disney's appeal of an order from a Los Angeles Federal Judge denying them the right to recapture Pooh merchandising rights from the author's heirs under the revised Copyright Act. The Slesinger rights do not include the Pooh literary propertiers created by Milne.