Fine kettle of fish for Disney

Mouse reported rise in profits, revs up 6% to $6.2 bil

A huge quarterly haul from a wayward fish more than compensated for Disney’s drooping theme park attendance, middling Alphabet net ratings and a sluggish overall economy.

Disney’s fiscal third quarter earnings beat the Street’s expectations and potentially paved a smooth earnings path to the end of the year.

Mouse House reported a rise in profits of nearly 10% over the same three-month period last year to $400 million. The gain, which came off revenues up 6% to $6.2 billion, came courtesy of Disney’s super-hot movie unit boosted by Pixar’s smash hit “Finding Nemo.”

The movie and TV studio scored a hefty 70% profit rise to $71 million in the quarter, up from $22 million a year ago, primarily thanks to improvements in domestic theatrical distribution and foreign homevideo. These partly offset declines in domestic TV sales.

The obvious sore point for the Mouse was its theme parks and resorts unit, where profits dropped to $352 million from $467 million a year ago. Potentially troubling was a disclosure Thursday by corporate cousin EuroDisney, which says it doesn’t expect to be in compliance with bank covenants for fiscal 2003 and 2004 on account of the slide in travel and tourism that will hit park attendance and hotel occupancy. Disney (which owns 39% of EuroDisney) could be on the hook for credit, though company execs expressed confidence that banks would refinance deals.

“Finding Nemo,” which has grossed more than $300 million domestically and should take top box office honors for the year, was a major driver for Disney. So far this year, Disney (including Miramax) has raked in $1.3 billion in B.O. and secured a 24.5% market share, said chairman-CEO Michael Eisner.

Double-digit horizons

Execs say the double-digit returns on its film investments should continue to the end of the year.

Helping Disney’s current fourth quarter is the fact that all P&A costs for “Pirates of the Caribbean” hit in the past quarter. Pic, which will likely top $200 million cumulative B.O. this weekend, will start dropping pure profit to the bottom line this quarter.

Regarding the ongoing talks to renew its deal with animation studio Pixar, Eisner refused to speculate on deal timing or terms. “We’re happy with our partnership and talks are ongoing,” Eisner told a conference call of analysts late Thursday. Eisner said Walt Disney Studios chairman Dick Cook is leading the negotiations for Disney with Pixar.

Cost-conscious strategy

At the heart of the film unit’s success at double digit profit growth, said Eisner, is a new cost-conscious strategy that still focuses on creative quality as well as profit.

“We took a lot of capital out of the business in terms of both negative costs and development deals and other unnecessary spending,” said Eisner, who said Cook and Buena Vista Motion Pictures Group prexy Nina Jacobson had done a “fantastic job” within the motion picture division.

He noted that “Pirates” was the 42nd film to cross the $100 million mark for the studio and cited a sequel to “Pirates” already in the works.

“There are two parts to the strategy — to make inexpensive movies with good ideas and a certain kind of key director for a price and event movies that have the potential to become franchises which Jerry Bruckheimer and others are helping us accomplish. It seems there’s a lot of luck involved, but Dick Cook and Nina Jacobson have attacked some of these inefficiencies.”

Big and small focus

Eisner was upbeat on upcoming release “Brother Bear” and event pic “Haunted Mansion,” saying that for the future, the company seemed to be “on a roll with the Disney brand.” But he also noted that some of the most profitable films are those kept “under the economic microscope,” such as the Diane Lane starrer “Under the Tuscan Sun,” the studio’s $10 million investment in Kevin Costner’s soon-to-open “against the grain” Western “Open Range” and Bruckheimer’s upcoming modestly budgeted drama “Veronica Guerin.”

Goal, said Eisner, is to keep negative costs of high-risk business down — focusing on fewer films with higher results — while delivering event tentpoles around the world and continuing its strategy of picking up some key international rights to a number of high-profile pics (like “Seabiscuit”) for distribution outside the U.S.

The broadcasting unit, which recorded better-than-expected ad sales and lower-cost programming, posted a hefty 33% profit increase to $384 million. Unit, which includes the ABC network and cable assets, boosted revenues to $2.5 billion from $2.1 billion in the prior year quarter. However, cable operating income fell slightly, reflecting higher ESPN costs, principally due to the NBA basketball contract.

Cautious on ABC

Execs were cautious on predicting an immediate turnaround at ABC, though Disney prexy and chief operating officer Robert Iger noted that the net was seeing summer ratings gains in all key demos. He said the company is optimistic about its efforts at developing scripted series (especially sitcoms) for families in a “cost-efficient framework.” He added that Disney’s cable upfront generated strong sales.

Iger seemed confident that the fall network sked will deliver improved ratings results, though he conceded that concrete financial improvements could take a year.

Among continuing corporate goals are improvements in cost structure at ABC and continuing to secure attractive long-term cable distribution deals for ESPN, Disney Channel and ABC Family, as well as its forthcoming digital spinoff nets.

Disney’s consumer products group managed an 8% increase in revenues in the quarter to $497 million, though operating income dropped 24% to $39 million, due in part to heavy promotional pushes in the quarter. Company is currently looking to sell its Disney Stores in North America and Europe.