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Disney faces third quarter malaise

Profits down 26% as DVDs slip a disc

The Mouse’s ears looked pretty droopy Thursday as Disney reported a 26% drop in fiscal third-quarter profits, with the recession significantly affecting the company’s movie, TV and theme park divisions. The profit figure just barely beat analyst expectations.

The company squeaked out a profit of $954 million from $8.6 billion in revenues, which fell nearly 7% — below analysts’ expectations.

“While a tough global economy impacted our performance in the quarter, we remain encouraged by the relative strength of our business,” said Walt Disney Co. prexy-CEO Robert Iger.

A slate of better-performing films couldn’t come soon enough, as the studio swung to a loss of $12 million from a profit of $97 million a year ago, driven down mostly by poor DVD sales of catalog and current titles.

Revenue for the division fell 12% to $1.3 billion, with the strong performance of “Up” and “Hannah Montana: The Movie” helping to offset disappointments like “Confessions of a Shopaholic,” “Bedtime Stories” and “Bolt.”

Iger has been keen on exploring new ways to generate revenue from the company’s renewed emphasis on family fare, including developing a Web-based video service.

“There’s an opportunity, given the strength of the brand, to create an online destination for Disney-branded product, starting with movies,” he said, declining to disclose more details.

In the past, Iger has soured on the studio’s slate, but he’s been more upbeat on the company’s upcoming pics, especially as it readies to unspool several high-profile 3-D releases like “A Christmas Carol” and “Alice in Wonderland.”

“The bulk of the movies we’re making is still the right strategy,” he said.

Lower ad sales across news, daytime and primetime at ABC reduced broadcast TV profits by 34%, with the company also citing higher programming costs because of pilot pickup decisions that occurred later than usual due to the writers strike. Cablers such as ESPN, ABC Family and Disney Channel generated $1.12 billion in profits, dropping just 8%. Overall, the networks division tuned in a 2.3% drop in sales and 13% reduction in profits.

Nearly flat attendance but reduced spending on food, merchandise and hotels by tourists who visited Disney’s theme parks and resorts lowered that division’s profits by 19%. Revenue was down 9.4%. The company’s been offering an array of promotions to lure more guests.

Poor retail sales at Disney’s consumer products division led profits down 37%, while the company’s interactive arm, which operates the videogame division and Disney Online, saw losses improve to $75 million this year from $91 million in the same quarter last year because of lower marketing and development costs for games. Revenue was down 20%.

Disney’s stock fell 43¢ following the results but wound up closing 33¢ up to finish the day at $26.22, a gain of 1.3%.

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