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Video vexes Disney

Mouse's profits rise despite homevid drop

ORLANDO, Fla. — The Mouse House continues to be caught in cross-currents.

Muscular ESPN and resurgent theme parks managed to boost Disney earnings by 5% to $723 million last quarter.

On the other hand, profits from homevideo are plunging and those gathering at an investor meeting at Walt Disney World in Orlando, Fla., show concern not only about the recent Michael Ovitz trial but also about dirty laundry emanating from a forthcoming book about the company.

Wall Streeters are generally well disposed toward the company these days given the turnaround at ABC, solid perfs across divisions and a robust stock. The buoyant shares, which rose and additional 1.42% Monday to $28.63, have gone a long way toward quelling investor dissent.

Studio division was hurt by weak homevid sales fueled by a relatively slow slate of theatrical releases earlier in 2004. Comparison to the same quarter last year, when the studio scored with “Finding Nemo,” “Pirates of the Caribbean: The Curse of the Black Pearl” and a “Lion King” re-release on homevid, didn’t help matters.

Homevid profits plummet

Company sold 97 million DVD and VHS units last quarter, compared with 140 million in the same quarter a year ago. At the same time, “The Incredibles” and “National Treasure” performed well in theaters, as well as improvements in TV distribution and lower production writeoffs.

Overall, studio operating income plunged 27% to $333 million and revenue dropped 20% to $2.4 billion.

In a later session, studio chairman Dick Cook reiterated the company’s commitment to making “the right movies at the right price,” balancing its risk and investment in its film slate to get a double digit return on its investment targets.

He reiterated the studio’s strong year overseas and domestically. He said the key to Disney’s success is the Mouse House name, the importance of new technology and the development of new franchises.

He also stated that the studio’s 2005 slate was more balanced with a 50/50 split between Walt Disney Pictures and the Touchstone Pictures label.

Cook unveiled the name for the sequel to “Pirates of the Caribbean” would be “Pirates of the Caribbean: Dead Man’s Chest” and featured some of the highlights of its 2005 slate including “Flight Plan,” “The Hitchhikers Guide to the Galaxy,” “Casanova” and “Cinderella Man.”

Cook also said on the Buena Vista theatrical production side, studio has in development stage shows of “Tarzan” and “The Little Mermaid” and on upcoming DVD releases said the “Bambi” platinum edition and “Cinderella” releases in the fall were expected to bring in strong sales.

Over at ABC, the heady success of the current season hadn’t yet registered for the fiscal first quarter that ended in December because the net sold much of its ad slots at upfronts with lower ratings expectations. For that reason, broadcasting operating income actually decreased by $8 million.

But chief financial officer Tom Staggs said the net will break even this year and is on the path to profits in the near future as it can charge full price for such successes as “Desperate Housewives,” “Lost” and “Wife Swap.”

Perennial powerhouse ESPN fueled a $131 million jump in cable operating income. Sports net and ABC Family both saw double-digit ad and affiliate revenue growth.

Overall revenue for Disney’s media networks group, which includes all of its TV assets, rose 11% to $3.5 billion. Segment operating income was up 36% to $467 million.

Parks income up

Parks and resorts saw operating income up 11% at $258 million. Revenue surged 30% to $2.1 billion. Figures include the newly consolidated EuroDisney and Hong Kong Disneyland, which contributed $369 million to revenue and lowered income by $6 million. Company cited increased attendance and hotel occupancy at Walt Disney World and higher per capita spending at Disneyland.

Recent sale of the company’s Disney Store to Children’s Place hit its consumer products division during the holiday quarter, as revenue fell 14% to $725 million and operating income was down 3% at $231 million. Outside of Disney Store, though, consumer products revenue was up 10% and operating income grew 11%, primarily because of growth in vidgames and merchandise licensing.

Conglom’s total revenue and operating income each nosed up by 1% to, respectively, $8.7 billion and $1.3 billion.

Staggs said the Mouse House continues to target double-digit earnings growth for the fiscal year ending in September and hopes to maintain that pace through 2007.

Looking to the future, Staggs also said Disney will be investing more funds in programming for its Disney Channel and ABC Family nets, as well as product development for its Buena Vista Games division.

Exporting TV content

Company’s looking to create more TV content to export to its growing lineup of nets around the world, such as Disney Channel India, in which it is investing $25 million this year. It also wants to grow its current tiny share of the booming vidgame biz.

Strong performance overall increased speculation that Bob Iger will replace Michael Eisner by the time he ankles as CEO in September 2006. The Disney board hired a search firm last year and said it would announce a new chief in June.

Opening the conference, parks chief Jay Rasulo was upbeat on the company’s gearing up for a worldwide celebration of Disneyland’s 50th anniversary. The program starts in May and lasts 18 months accompanied by the conglom’s biggest advertising campaign ever — worth about $150 million, Rasulo said.

Despite the upbeat numbers, some analysts remain puzzled as to why the weak dollar isn’t drawing even more foreign tourists to the parks.

“We don’t see a lot of research saying people are staying away for X, Y or Z reason,” Staggs said. “I think the attendance message is a pretty good one.”

(Cathy Dunkley in Hollywood contributed to this report.)