Disney should really create an MLP type yield vehicle for the IP it owns

If there’s a single investment that would be highly desirable for a buy and hold situation for decades to come, and if I could have a say in designing it – it would be Disney IP, based on Disney’s Consumer Products division (FY 2015 revenues $4.5B, operating income $1.7B), specifically on the licensing part of it (FY 2015 revenues $2.8B). It would be sort of like a MLP that owns and operates all the IP ever generated at the Walt Disney Company, with the WDC acting as a general partner.

How it would work

The WDC would drop down all of its existing IP into this vehicle and retain control over it (similarly to a MLP general partner position), to maintain a symbiotic relationship into the future, with all or most royalty structures fixed for decades. The IP venture would only maintain a skeleton staff to conduct its licensing activities with third party licensees. It should be run by a beta lawyer with oversight from a board of WDC executives and a few alpha lawyers and independent directors. In general, the overhead should be kept at a minimum (<1% of revenues). Importantly, the IP venture would not maintain a creative staff to develop new IP. IP generation would be conducted at the WDC the way it is generated now. Any new IP the WDC generates would not be automatically dropped down to the venture, but be allowed to mature at the WDC level to validate its revenue generating ability. Then, market-tested, the generated IP would be converted into IP venture equity at market value.


Because IP is the only part of the WDC lines of business that is going to grow into perpetuity, unless communists kill IP rights. The market would probably put a rich premium on it. I’m thinking 40X EBITDA. Because it’s a growth MACHINE. It would have ever larger distributions/dividends for holders of units/shares, courtesy of the growing value of IP owned. The WDC would still both maintain control of the IP and also have the ability to cash it in via IP conversion to IP venture equity and a subsequent share sale in the IP venture. So they would have more money to sink into capital intensive lines of business.

Why not just buy DIS?

Because at present, licensing is only about 5-6% of revenues and still considered insignificant. It’s the fastest growing line of business at the WDC, but it’s from a small base. Buying DIS would be like buying a suit because you like the button. I have no desire to own Media Networks and Parks and Resorts, which together make up about 75% of the WDC revenues. I just REALLY would like the button, please. And I suspect there would be a strong demand in the market for it as well.

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