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Disney Earnings, Profits Set Records, Though Cord-Cutting Questions Persist

UPDATED: Disney set records in many reporting categories Thursday as it reported earnings for the fourth quarter and for all of fiscal 2015, with revenue and earnings at new peaks, despite some investor questions about possible weakness in cable television revenues, as more consumers flee traditional television for new options online.

The $1.20 earnings per share reported by the entertainment conglomerate topped analysts’ projections that averaged $1.14 per share, well ahead of the 89 cents logged a year earlier. Revenue for the year jumped to $52.5 billion, a 7% increase over the prior year and a new record.

“We had a strong quarter, with adjusted EPS up 35%, completing our fifth consecutive year of record performance,” said Robert Iger, chairman and CEO of the Walt Disney Company. The Disney boss celebrated the fiscal year ended Oct. 3 for delivering “the highest revenue, net income and adjusted EPS in the company’s history, reflecting the power of our great brands and franchises, the quality of our creative content, and our relentless innovation to maximize value from emerging technologies.”

Disney stock dipped by more than $3 to just over $110 per share immediately after the report in after-hours trading, but got back most of the decline in short order.

Speculation prior to the report was laden with both hopes and fears — the former over the pending December release of the first “Star Wars” film since Disney’s purchase of Lucasfilm put it in control of the franchise, the latter tied to growing concerns that consumers are ditching cable TV packages that have been a bulwark of the conglomerate’s profits.

On the TV subscription question, the report offered a mixed verdict. ESPN experienced an increase in subscribers due to addition of a full quarter of the SEC Network, offering wall-to-wall coverage of athletics in the sports-crazed Southeastern Conference. The new channel launched in August 2014. But Disney also said it had experienced “a decline in subscribers at certain of our networks.”

Iger’s mention of just “modest” subscriber reductions for sports giant ESPN in August triggered a mass sell-off of Disney and other media stocks. The stock lost 9% of its value in one day and continued retreating to $90 per share, before recovering in the last week to more than $115 per share. The fear of cord-cutting consumers reared its head again Wednesday, however, when Time Warner’s report of declines in cable TV subscriptions at Turner along with a lower 2016 earnings outlook again spurred a dip in media stocks.

Asked by the initial questioner Thursday whether he wished to add or modify anything to the comments he made in August, Iger said he did not. “We don’t have anything to really add to the comments we made,” Iger said. “We feel bullish about ESPN and ESPN’s business.” More broadly, Iger said, Disney believes it is well positioned to capture audiences via traditional cable bundles or new web-based delivery systems. “There is not only a silver lining but a glass half-full perspective on this,” he said.

Later in the call, Disney execs also turned aside any thoughts that the ESPN’s recent layoff of about 300 employees (or roughly 4% of its global workforce) indicated any serious retrenching at the sports channel. They said the station’s portfolio of rights for live sports, along with other programs, made it “stronger than ever.”

Overall, Disney’s studio entertainment operation logged about the same revenue as in 2014 — $1.8 billion. But operating income for the unit rose substantially, increasing $276 million to $530 million on the strength of higher distribution fees for TV and subscription VOD, lower film write-off costs and a banner year in theatrical box office and consumer product sales.

Theatrical victories for both “Inside Out” and “Ant Man” made the quarter more successful than the fourth quarter of 2014, when Disney’s releases were “Guardians of the Galaxy” and “Maleficent,” with no Pixar offering. Merchandise sales for “Frozen,” in particular, pushed up the company’s consumer take for fiscal 2015 — a 13% jump on the year, to nearly $4.5 billion.

One of the few laggards for the company was its interactive division, which saw its revenue drop by 10% to just under $1.3 billion for the year. The company moved in 2015 to combine its digital operations with consumer products.

Iger’s task Thursday was to both quell fears about the loss of traditional television subscribers who have powered much of Disney’s profit, while also demonstrating that the conglomerate is preparing the way for the increasing percentage of viewers who want to get their video content via the Internet. One step in that evolution emerged last month, when Disney announced the new DisneyLife over-the-top service in Britain, allowing consumers on the web to get some TV shows and movies for a monthly subscription fee.

Though the next episode of the “Star Wars” saga does not hit theaters until Dec. 18, anticipation of “The Force Awakens” has been building. With the release of the film six weeks away, Iger said the value of the brand is already emerging via multiple avenues: the release of games and toys on the company’s “Force Friday” rollout in September, viewership of Disney XD’s digital “Star Wars Rebels” and Electronic Arts’ Nov. 17 release of the “Star Wars Battlefront” game. The CEO previously announced new “lands” in Disneyland and Disney World devoted to Star Wars.

If the company’s high hopes for the franchise weren’t obvious enough, the audience was serenaded before the start of Thursday’s earnings call with a recording of the “Star Wars” theme.

Another potential blockbuster on Disney’s horizon post-“Star Wars Episode VII” is the opening of the company’s newest theme park, in Shanghai. Iger repeated earlier reports that the expansion of original plans for the park had pushed the opening from 2015 into next year. He said he expects that the specific date for the debut of Shanghai Disney to be announced before the end of the year.

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