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

Robert Iger Sells Disney Stock
Michael Loccisano/Getty Images

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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  1. More and more, that Lucasfilm deal is looks like spectacular value for money, as is that Marvel deal.

  2. Gunnar A Reed says:

    Is Disney finally recognizing cord-cutters? About time…

  3. Zack says:

    Disney has operated like a corporate monopoly mob. It should be broken up just like the banks if we want good artists and good entertainment, for reasonable prices. They have stolen a lot of our culture and placed it all under copyright. Companies like Disney destroy innovation through an over-reach of their (largely unmerited) protectionist policies. Its sad they buy or merge with new companies without this kind of protectionist weight like Pixar (and which produce much better product as a result as well).

  4. Word Up says:

    If ever there was a company that was positioned to weather the weakening of one of its core revenue streams, Disney is it.

    As a former cord cutter who has now returned to cable (albeit with a basic package, no movie channels or dvr) I can’t help but ask if anyone’s thinking about what will happen when every media outlet has their own subscription based over the top service? It’s going to get so complicated that consumers are going to reject all but the most popular one or two.

    No one is going to subscribe to separate streaming services from CBS, HBO, Showtime, HULU, Disney, Netflix, Amazon, FOX, ESPN, YouTube, etc. By the time they’re done, their monthly tab will be above the price for cable and a few select streaming services! (e.g., I also have Netflix, Amazon and Hulu Plus, the industry leaders with the best libraries, and even that becomes a pain in the ass going between all of the apps)

    So what will happen when you have to buy 10 separate subscriptions to watch your favorite shows? People will just go back to cable! You can’t beat the convenience, ease of use and image quality.

    Now, what about young people who steal everything online and watch it on their computers? You’re never going to win them over so don’t even try. But the ones who grow up and get jobs are going to eventually get cable, imho. Maybe I’m wrong and the stats aren’t proving this correct, but I don’t know anyone in their late 20s and 30s who doesn’t have at least a basic cable package.

    • John robinson says:

      Cables terrible. Picture quality isn’t near Hulu or Netflix with hi speed ISP. Hulu has 90 % of what I would watch on cable. 12.50 and no commercials and ads. Comes basically with a free unlimited gb dvr. Get series like got, walk dead on Amazon for 15 for entire new seasons. Netflix is 8.99

      All you need.

      • Word Up says:

        Hulu’s library is nowhere near as comprehensive as it could be and the delays are crazy. Some shows like New Girl take 10 days to post on Hulu! And popular shows like GOT or TWD may take years to come on Amazon.

        And you must have an amazing Netflix connection because even though I have high speed internet I often see pixellation. I am in an apartment complex so my connection can often be slowed by high usage, but still, it should look better and is nowhere near the cable image.

      • Robert Grouse says:

        Point well taken – a universe of ten or more streaming subscriptions would be a management challenge for the customer. But going back to cable, with monotonically increasing prices for dozens of un-watched channels, is not the solution. My bet is that someone will work a deal to integrate the major players into ONE streaming service at a rational cost to the user. The next step is to give the end user the ability to receive just the channels of interest and get that service priced appropriately.

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