Underperformers 'Frog,' 'Carol' hurt bottomline

The Mouse House’s ears still looked perky Tuesday as Disney’s earnings came in flat in the quarter ended Jan. 2, a period when films like “A Christmas Carol” and “The Princess and the Frog” underperformed and lower attendance at theme parks were expected to hurt the company’s bottom line.

Yet the company’s performance can be seen as disappointing when compared with that of other entertainment congloms like Time Warner and News Corp., which posted solid gains during the same period. Viacom reports results Thursday.

Overall, the Walt Disney Co. earned $844 million in profits during its first fiscal quarter compared to $845 million a year ago, from revenue of $9.7 billion, up 1%.

Television networks, typically the biggest moneymaker at the company, was the only division to post significant gains, with profits up 11% to $724 million from a 7% surge in revenue to $4.2 billion, thanks mostly to subscriber growth overseas at the Disney Channel and higher affiliate and advertising revenue at ESPN.

Cablers, including ESPN, Disney Channel and ABC Family, posted a 5% gain in profit to $544 million as revenue was up 8% to $2.7 billion. Profits at ABC and local stations increased 30% to $180 million, while revenue rose 4.8% to $1.5 billion.

Ad sales at ABC in the current, second quarter are up 30% compared with last year’s upfronts, according to Disney chief financial officer Jay Rasulo, signaling that advertisers are willing to increase their marketing spending again. ESPN is up in the single digits compared with last year.

“However, advertisers continue to make their purchases very close to airdates, limiting our ability to read longer-term trends,” Rasulo said.

The studio overhauled its entire executive ranks during the quarter after Dick Cook resigned as chairman of the Walt Disney Studios in September and former Disney Channels topper Rich Ross took over in October, tasked with turning around a disappointing slate of films at the box office.

Despite taking a writedown on “Christmas Carol” and “Princess and the Frog,” the studio saw profits increase 30% to $243 million. The numbers improved mainly on several rounds of cost-cutting across the lot and strong sales for “Up” and “The Proposal” on homevideo. Overall revenue at the studio was flat at $1.9 billion.

Studio should see significant gains this year as Disney is readying to unspool one of its strongest slates in years. Tentpoles include next month’s “Alice in Wonderland” plus “Toy Story 3,” “Prince of Persia: The Sands of Time,” “The Sorcerer’s Apprentice,” “You Again” and “Tron Legacy.”

During a call with investors, company chief Robert Iger declined to discuss industry chatter that Miramax is for sale.

Meanwhile, the Mouse House is showing improvement when it comes to videogames. That area of the biz reduced losses from $45 million a year ago to $10 million. An increase in subscriptions at Club Penguin boosted Disney Online, while lower marketing expenses and production costs helped Disney Interactive Studios. Revenue at the interactive media unit decreased 29% to $221 million on the release of fewer games. Disney has been said to be eyeing Electronic Arts as a potential acquisition to grow its games biz.

It certainly sees Apple’s new iPad as a way to help its interactive media arm.

Iger said the tablet “has a lot of potential” and “could be a game changer in terms of enabling us to essentially create new forms of content.” He pointed to ESPN’s “ScoreCenter” as a way to offer consumers a different form of entertainment that’s not available on a traditional computer or TV screen but on Apple’s iPhone. “Suddenly, we have a platform where you can really make those scores come to life,” Iger said.

Sales at Disney’s theme parks were essentially flat at $2.7 billion, with profits down just 2% to $375 million, helped by an increase in attendance in the U.S. because of discounted tickets.

While resort bookings are down 10% so far this quarter, analysts had worried that the recession would keep even more consumers at home. The number of visitors to Disney’s theme parks will have many upbeat that consumer confidence is starting to help turn the economy around.

They may have left their homes, but consumers spent less on merchandise. Sales at theme parks were down, and they were also off 3% at Disney’s consumer products arm, lowering profits by 8% to $243 million. Interest in “High School Musical” and “Hannah Montana” gear is waning, the company said.

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