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‘Mars’ flop dents Disney earnings

Studio profits take a hit while Mouse's cablers post solid gains

The timing couldn’t be better for Disney execs to sail off to premiere “Pirates of the Caribbean: On Stranger Tides” around the world, as the studio is no doubt eager to leave behind the disappointing second quarter, when “Mars Needs Moms” ran aground in theaters.

Although the Walt Disney Co. collected $9 billion during the first three months of the year, up 6% vs. the same period a year ago, profits were off slightly, 1%, to $942 million.

The studio arm bears the brunt of the decline, after “Mars Needs Moms” failed to find an audience. The ImageMovers toon, produced by Robert Zemeckis, carried a pricetag of at least $150 million but earned just $37 million worldwide.

As a result, Disney was forced to write off the pic’s perf, and it chose to shutter its ImageMovers Digital studio outside San Francisco in March. Closure, along with costs related to abandoned film projects, including a reboot of the Beatles’ “Yellow Submarine,” wound up costing the Mouse House $96 million, it said in a financial statement, and to pay out another $80 million in restructuring charges due to severance and related costs.

ImageMovers Digital, which also produced Disney’s “A Christmas Carol,” and “Beowulf” and “Polar Express” before that, had employed 450 staffers.

Overall, profits at the film division plunged 65% to come in at $77 million on a 13% drop in revenue of $1.3 billion during the quarter, which ended April 2.

Earnings from “Tangled” and “Tron: Legacy,” collected primarily from overseas theaters, were also tallied during the quarter. Last year, the success of “Alice in Wonderland” fueled much of the film division’s haul, as did strong homevid results from the first two “Toy Story” pics and “Up.”

This summer is expected to put some more wind in Disney’s sails, with the fourth “Pirates” entry expected to perform strongly. “Cars 2” and Marvel releases “Thor” and “Captain America” should also contribute considerably to the company’s bottom line.

Across the rest of the Mouse House, its media networks are expected to benefit from a rebound in advertising spending. The group already enjoyed an upswing during the recent quarter, with 12% growth in revenue of $4.3 billion and operating income climbing 17% to $1.5 billion, fueled by advertising and affiliate revenue gains for cablers ESPN, ABC Family and Disney Channel.

Individually, cable network sales came in 17% higher at $2.8 billion, helping profits rise 15% to $1.4 billion. Network sales at ABC and ABC Studios were up 4% to $1.5 billion, helping to boost profits 36% to $167 million.

The earthquake in Japan, which closed the Tokyo Disney Resort in March, took a $25 million toll on earnings at the theme park division. At the same time, the costs to launch the resort group’s new Disney Dream cruise ship, as well as Easter’s appearance later on the calendar this year, caused profits at the resorts group to dip 3% to $145 million. Revenue was up 7% to $2.6 billion, though, thanks to higher attendance and hotel occupancy levels at Disneyland Paris and Hong Kong Disneyland Resort.

Consumer products revenue increased 5% to $626 million, while profits were up 7% to $142 million thanks to the company’s revamped Disney Stores and consumer interest in “Tangled,” “Cars” and “Toy Story” merchandise.

Disney’s interactive group continues to redefine itself to focus more on creating games for social networking sites like Facebook. Company’s acquisition of online gamemaker Playdom deepened the division’s losses, which increased from to $115 million for the quarter from $55 million a year earlier. Revenue for the group, however, rose 3% to $159 million.

“We are pleased with the underlying quality of our second-quarter earnings,” said Disney prexy Robert Iger. “There is great creative momentum throughout the company which gives us continued confidence in our ability to grow our businesses.”

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