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Disney reports hike in profits

Growth due to theme parks, TV, merchandise

The Walt Disney Co. was plucky in its third quarter, posting single-digit gains across its businesses during the earnings frame ended June 30. Along with earnings, the Mouse House on Wednesday announced its acquisition of Club Penguin, a premium online kids community, for $350 million in cash plus up to an additional $350 million in 2009 if the website hits certain growth and profitability targets.

Scheduled to be renamed Disney Club Penguin, the site will be exploited in TV, film, consumer products and other arenas. In less than two years since launch, the site, which allows kids to control animated penguin avatars in sort of an Antarctic version of “Second Life,” has racked up 700,000 paid subscriptions. It offers the Mouse a potentially lucrative tool on the Web, which has been a particular strategic focus since CEO Robert Iger’s unveiling of the redesigned Disney.com at the Consumer Electronics Show earlier this year.

Overall, Disney revenue in the quarter rose 7% to $9 billion and net income went up 4.7% to $1.18 billion. Consumer products turned in the best performance, with revenue growing 23% thanks to vidgames such as “Pirates of the Caribbean: At World’s End.”

All other divisions grew much more modestly, though one bright spot was the media networks unit. Paced by ESPN, it recorded a 23% gain in operating net on a 6% rise in sales to $3.8 billion.

Steve Wadsworth, prexy of the Walt Disney Interactive Group, estimated during a conference call Wednesday that Web ventures now account for more than $500 million companywide, excluding theme parks’ online ticket sales. Growth rates are also much higher than those of the company’s more mature arenas such as movies, publishing and broadcast TV.

Wadsworth said his department has looked at several potential takeover targets, but none fit as well as Club Penguin. Its key age demo is 6-10, positioning it in Disney’s portfolio alongside the premium Playhouse Disney Preschool Time Online, Toontown and destinations such as a “Pirates of the Caribbean” gaming site launching later this year.

“What they bring is experience,” Wadsworth said. “They stay very close to the community and the user base and what will keep them there and keep them interested.”

With shades of onetime Monorail operator Dick Cook, who now runs the film studio, Lane Merrifield, one of the founders of Club Penguin, noted that his resume included a stint working at Disneyland as a teen growing up in Southern California. “Walt’s vision of having a place that was diff than the carnivals of the time is what influenced us in creating Club Penguin,” he said.

In a conference call with analysts, Iger touted the performance of the film studio’s two entrants in what he called “one of the most competitive summers ever” at the B.O. “Pirates of the Caribbean: At World’s End” has reached $950 million in worldwide box office, and “Ratatouille” is on track for $200 million in the U.S., with key overseas bows yet to come.

The Mouse House topper said the cume of “Ratatouille,” plus its strong reviews, validate the pricey deal to acquire Pixar, which has now been fully digested on the balance sheet. “When we evaluated the acquisition, we looked at their titles on a worldwide basis,” Iger said. “These are long-term products. They will deliver value for a long time. When you put the name Pixar or Disney on an animated film, they will generate revenue for decades to come.”

On an up-and-down day for the Dow, which closed in positive territory, Disney shares tacked on 2.5% to finish at $33.83.

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