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Disney profits from cable

Times Staff Writer

Walt Disney Co. exceeded analysts’ recession-clouded projections Tuesday, reporting a 9% increase in revenue fueled by the Disney Channel’s popular “Hannah Montana” and “High School Musical” franchises, surging consumer products sales and gains at its theme parks.

Disney Chief Financial Officer Thomas O. Staggs sought to allay investor concerns about the weakening economy’s potential effect on the theme-park business, which took a hit during the 1991 and 2001 recessions. Revenue and operating income were up for the quarter, and Staggs said domestic park bookings and room reservations over the next nine months were “modestly ahead” of the year-earlier period.

Disney reported first-quarter net income of $1.25 billion, or 63 cents a share, for the quarter ended Dec. 29, compared with $1.7 billion, or 79 cents, a year earlier. That represents a drop of 27%, reflecting one-time gains in the year-earlier quarter from the sale of Disney’s stake in E! Entertainment and Us Weekly magazine. Excluding these one-time items, earnings per share rose 29% compared with 49 cents from the year-earlier period.

Revenue rose to $10.45 billion from $9.58 billion.

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Analysts polled by Reuters Estimates expected Burbank-based Disney to post revenue of $10 billion for the first quarter, and earnings per share of 52 cents. Investors reacted enthusiastically to the results, which were released after the markets closed. Disney shares closed down 83 cents to $30.07 on Tuesday, but rose $1.71 in after-hours trading to $31.78.

Disney’s cable networks clearly buoyed Disney’s results. Operating income rose to $586 million for the quarter, up $125 million from the year-earlier period. ESPN has long been a standout for Disney, but its double-digit growth in ad revenue was offset by increased sports rights and programming costs. The Disney Channel has emerged as the new powerhouse, riding the popularity of “Hannah Montana” and “High School Musical 2,” which fueled DVD sales and higher revenue from rate increases and subscriber growth.

Chief Executive Robert Iger singled out the success of the “Hannah Montana/Miley Cyrus: Best of Both Worlds Concert Tour” 3-D film, which reaped $31 million in box-office receipts, a domestic record for Super Bowl weekend.

“Its impressive performance highlights our mission perfectly,” Iger said. “That is, to create high-quality content and apply innovative technology to raise the level of consumer experience in a way that differentiates Disney.”

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Iger said this represents the “Disney difference,” the company’s ability to brand a piece of creative content -- in this case, a top-rated Disney Channel show about a teen with a secret life as a pop star -- and leverage it across the company’s divisions.

Miley Cyrus, for example, produced a “Hannah Montana” soundtrack CD that sold 8 million copies worldwide, performed in a sold-out summer concert tour, inspired games for the Nintendo DS hand-held and Wii consoles that have sold more than 1.7 million units, and made special appearances on Disney’s website.

It’s the same formula Disney has employed with the “High School Musical” franchise, which sold 30 million DVDs and soundtrack albums since January 2006, inspired a live show at the theme parks, an ice show, and more than 2,500 school and amateur theater productions.

“The cable network business is on fire -- and that’s the quote,” said Richard Greenfield, a media analyst with Pali Research, who upgraded Disney to a “buy” rating last week. “Advertising is strong and Disney is creating new franchises they can monetize in new ways, be it the ‘Hannah Montana’ movie or DVD sales from ‘High School Musical.’ ”

Iger said the company was producing such creative franchises across divisions -- be it “Pirates of the Caribbean,” which began as an attraction in the theme parks, or the “Cars” and “Toy Story” franchises, which began as movies at Pixar Animation Studios. It has sustained these franchises, with “Toy Story” producing $400 million in licensed merchandise sales annually eight years after the last theatrical release. Iger said “Cars” was generating more revenue now than in the year of the film’s 2006 release.

“Five years ago, we could count on only two franchises,” Iger said. “Today, we have 10 vibrant creative properties, which are managed and promoted on an integrated basis across business lines.”

That’s paying dividends for Disney’s consumer products division, which saw its revenue swell 29% to $870 million, and operating income increase 38% to $322 million, led by the strong performance of “Hannah Montana” and “High School Musical” merchandise.

Operating income for broadcasting increased $75 million to $322 million for the quarter, and Iger said ABC was not affected by the writers strike. Disney will, however, make fewer TV pilots this year even if the strike is settled soon, he said.

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“There will also be some revenue loss because of our decrease in the number of shows that we can sell on a worldwide basis,” Iger told analysts.

Only the studio saw operating income for the quarter fall, decreasing 15% to $514 million, as revenue essentially was flat at $2.6 billion. DVD sales of “Pirates of the Caribbean: At World’s End,” “Ratatouille” and “Jungle Book” were 9% below home-entertainment sales of the year-earlier period, which featured the release of “Cars,” “Pirates of the Caribbean: Dead Man’s Chest” and “The Little Mermaid.”

Parks revenue rose 11% to $2.8 billion in the quarter, and operating income rose 25% to $505 million.

Staggs said attendance rose at Disneyland in Anaheim and Walt Disney World in Florida, and admissions rose in the double-digits at Disneyland resorts in Paris and Hong Kong. Paris marked its 15-year anniversary, and Hong Kong used the lure of special events planned around Halloween and the holidays to attract visitors locally and from mainland China. He cautioned that harsh weather in China might depress attendance during the upcoming Chinese New Year.

Staggs said the company would respond quickly to any changes in market conditions at the parks.

“We’ll adjust hours, we’ll adjust rooms that we make available, we’ll adjust the number of entertainment offerings,” Staggs said. “So that while there’s clearly a large fixed cost base in parks, we do have the ability to dial up and down our costs.”

Laura Martin, an analyst with Soleil Media Metrix who has a “buy” recommendation on the stock but does not own any personally, said the company spent an “inordinate amount of time” on parks because of Wall Street’s concerns.

“They did their best to say, at least to date, they haven’t seen a slowdown in the parks, bookings were up a little over the next nine months compared to the prior year,” Martin said. “They’ve never done that before.”

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dawn.chmielewski@latimes.com


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