Studio arm profits fall 43% during its first quarter

Robert Iger can expect to be asked about “Star Wars” until he retires.

The Disney chairman-CEO warmed up Wall Street analysts on the Mouse’s earnings call Tuesday by revealing that scribes Lawrence Kasdan and Simon Kinberg are developing two standalone “Star Wars” films, to be released separately from the three pics announced at the time the Mouse unveiled its $4 billion acquisition of Lucasfilm in October.

The “Star Wars” bulletin came as Disney touted the results of a stronger-than-expected start to its fiscal year, with revenue up 5% to $11.3 billion during the first quarter. Higher operating costs at ESPN, however, dragged down net income 6% to $1.38 billion during the three-month period that ended Dec. 29. And the studio side profits were down on tough year-to-year comps, another reason why the Mouse was eager to emphasize the “Star Wars” properties in the pipeline.

“After delivering another record year of growth in 2012, we’re off to a solid start in Fiscal 2013,” said Iger. “Our ongoing success is driven by our long-term strategy, the strength of our brands and businesses, and our high-quality family entertainment.”

While Disney Channel, ABC Family and A&E enjoyed gains, helping increase revenue 7% to $3.5 billion, higher programming and production costs for college football, NFL and NBA games dragged down results for Disney’s cable networks. Operating income at Disney’s cable networks decreased $15 million to $952 million for the quarter.

ABC also saw revenue rise 6% to nearly $1.6 billion due to higher ad sales, which helped profits increase 16% to $262 million. Company said ABC had sold out of its ad inventory for the Academy Awards, with most of the inventory sold before the Christmas holidays.

Cars Land continues to boost the bottomline of Disney’s theme parks and resorts division, which saw revenue increase 7% to $3.4 billion, and profits up 4% to $577 million. Overall park attendance was up 4% while spending rose another 6% during the quarter, which fell during the holidays.

Company is in the midst of doubling the size of Fantasyland at Walt Disney World, which will be completed in 2014, Iger said, and should increase guest revenue at its flagship park.

Despite the success of “Wreck-It Ralph,” the film division saw revenue decrease 5% to $1.5 billion, as Disney paid to also market and release “Lincoln,” “Frankenweenie” and “Monsters, Inc. 3D.” Profits plummeted a whopping 43% to $234 million, however, from declines in homevideo and theatrical distribution earnings. “Brave” and the “Cinderella Diamond Release” couldn’t keep pace with the homevid sales in the year-ago quarter for “The Lion King Diamond Release” and “Cars 2.”

Studio has a strong release sked in 2013, starting with next month’s “Oz, the Great and Powerful,” “Iron Man 3,” “Monsters University,” “The Lone Ranger,” “Thor: The Dark World,” “Frozen” and “Saving Mr. Banks.”

Interest in Marvel’s Spider-Man helped Disney’s consumer products group grow sales by 7% to $1 billion during the quarter, while profits rose 11% to $346 million.

And Disney Interactive saw a rare profit of $9 million come out of the division as revenue from the games group rose 4% to $291 million. Iger has long said the interactive arm would turn a profit in 2013, and pointed to a focus on mobile and social games, as well as new title Disney Infinity, launching later this year, as a product which should help push the division further into the black.

“We have more work to do and Disney Infinity will be a big swing factor” in turning Disney Interactive profitable, Iger said.

Also during the quarter, Disney paid Hulu $55 million, triggered as an executive compensation charge when Disney bought out Providence’s stake in the streaming service.

As for Disney’s decision to end its digital distribution deal with Starz and move its movies and TV shows over to Netflix, Iger said he was impressed with the platform and user interface.

It also helped that “they stepped up and paid the right price, which was extremely important,” he said.

Still, the news that even more “Star Wars” films are coming propped up Disney’s stock price on Tuesday to its highest levels after Wall Street closed, up $1.49 to $55.78 from $54.29.

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