Radio sale frees up cash for Pixar deal
NEW YORK — Walt Disney unveiled on Monday a long-anticipated sale of its radio stations to Citadel Broadcasting. Cash and stock deal worth $2.7 billion will give the Mouse some financial breathing room as it seals the hefty $7.4 billion purchase of Pixar Animation Studios.
Disney also said Monday that its profits jumped 7% last quarter to $734 million. Robust earnings at ABC (up a whopping 87%) and theme parks offset a 60% plunge in filmed entertainment.
CEO Robert Iger confirmed that Pixar will indeed take over production of “Toy Story 3.”
Total revenue nosed up 2% to $8.85 billion.
Citadel deal includes 22 of ABC’s 71 stations and the ABC Radio Networks. It doesn’t involve stations that operate under the Radio Disney and ESPN banners. Citadel, a publicly traded Las Vegas-based radio broadcaster, will become the nation’s third largest radio group and change its name to Citadel Communications.
Shares representing 52% of the new company will be distributed to Disney shareholders, and the Mouse itself will receive a cash payout of up to $1.65 billion — depending on the price of Citadel stock when the deal closes. Citadel shareholders will own the remaining 48% of the combined company.
Pact has been approved by both boards, and it is expected to close in the fall.
Disney has been shopping its radio biz on and off for years. Sale comes at last as the conglom has focused its strategic priorities on content, animation in particular, and on new forms of distribution, like its landmark deal to air ABC series on Apple’s iPod. Apple chairman Steve Jobs, who also owns Pixar, will become Disney’s largest single shareholder when that acquisition closes.
During a conference call Monday, Iger reviewed the boons of the Pixar deal: Disney will own 100% of Pixar’s pics; the Pixar team, with a perfect track record so far, will be making sequels to their own movies; and the talents of Pixar execs Ed Catmull and John Lasseter should improve the prospects for Disney’s own animated films. Animation is such a “wavemaker” for the company, Iger stressed, that Disney’s got to get it right.
He said Disney doesn’t intend to change the release schedules for its own animated offerings “Meet the Robinsons,” due at year’s end, and “American Dog” in 2007. But when the Pixar buy closes, he said, Catmull and Lasseter “will review what we have in development and they will decide what gets made and when it gets released.”
Studio entertainment revenue fell 13% to just over $2 billion. Operating income plunged to $128 million from $323 million.
Mouse said writedowns, a “lower performing” slate of titles and higher marketing costs year on year more than offset strong perfs of “Chicken Little” and “The Chronicles of Narnia: The Lion, the Witch and the Wardrobe.” Domestic homevid revenue was also down from the previous year.
Asked about windows, on which he’s spoken forcefully, Iger said, “It comes down to one very obvious thing… We’re watching consumer behavior change before our eyes” while companies are still wedded to old models.
“It’s tricky because you’re putting relationships on the line and, in some cases, putting current business models on the line,” he added. Iger sees enduring appeal in “going to a great movie on a bigscreen” but said, “I think the industry has to pay heed and make sure that in a competitive industry we’re serving the consumer better.”
Media networks, including heavyweights ABC and ESPN, saw revenue firm by 6% to $3.7 billion and operating income grow 7% to $606 million. A red-hot ABC led the way, with broadcast profits surging to $234 million.
Operating income at cable nets fell 15% to $372 million on higher programming commitments at ESPN and higher programming and marketing costs at ABC Family. The Mouse cited $105 million of “revenue deferrals” at ESPN under new affiliate contracts and said the revenue is expected to be recognized in the second half.
Parks and resorts had a star turn as income rose 51% to $375 million. Revenue was up 13% to $2.4 billion. Mouse chief financial officer Tom Staggs said investment in the parks is paying off, along with the ongoing 50th anniversary celebration and strong attendance at the new Hong Kong Disneyland.
At consumer products, operating income rose 17% to $270 million. Revenue was about flat at $733 million, due in part to the sale of the Disney Stores.
In the radio deal, Citadel chairman-CEO Farid Suleman will run the expanded company. Suleman, who joined Citadel in 2002, was formerly CEO of Infinity Broadcasting.
Infinity, the radio division of the former Viacom and now of the new CBS Corp., was Mel Karmazin’s old company. It’s since been renamed CBS Radio.
Citadel has 163 FM and 58 AM stations.