LOS ANGELES — 2016 has been the Year of the
Mouse at the box office, as the Walt Disney Company released a string of
smash hit movies. But ultimately, that force was not strong enough to
overshadow its challenged TV business.
After markets closed Tuesday, Disney reported
revenue of $13 billion and earnings of $1.30 per share for the first
three months of the year. That was largely driven by a torrid start to
the year at the box office, which boosted its revenue by 22 percent and
profits by 27 percent compared with the same months a year earlier. That
period is Disney’s second quarter per its fiscal year.
With “Star Wars: The Force Awakens,” which
made more than $2 billion worldwide — a good chunk of that during the
current quarter — rolling right into “Zootopia,” with close to $1
billion, studio entertainment was expected to be the star of the show,
which it was.
Despite that, Disney’s earnings fell short of
analyst projections, which averaged $13.2 billion in revenue and
earnings of $1.39 a share, according to data from Thomson Reuters.
Disney reported $12.4 billion in revenue and earnings of $1.23 per share
in the corresponding quarter last year.
That cinematic hot streak should continue —
“The Jungle Book” is nearing $800 million worldwide, and “Captain
America: Civil War,” which came out last week, looks like it will be
another Marvel smash hit. And Disney has nine more films in the Marvel
Cinematic Universe and five more in the “Star Wars” canon in the
pipeline, which should print money through the end of the decade.
“Our studio’s unprecedented winning streak at
the box office underscores the incredible appeal of our branded content,
which we continue to leverage across the entire company to drive
significant value,” CEO Bob Iger said in a statement accompanying the
earnings report.
On a conference call after the earnings release, Iger provided some context for the strength of Disney’s core studio brands.
“Since our acquisition of Pixar, we’ve
released 27 movies under the Pixar, Disney Animation, Marvel and
Lucasfilm brands with an average global box office of about $780 million
each,” he said.
The
force has been with Disney CEO Bob Iger, but still no word on his
replacement. Pictured: Iger attends the world premiere of ““Star Wars:
The Force Awakens” at the Dolby, El Capitan and TCL Theatres in
Hollywood on Dec. 14, 2015. Photo: Alberto E. Rodriguez/Getty Images for Disney
But if Disney’s big-screen business is now the
model of stability with a truly global reach, its cable networks are
where the questions lie — and why the company’s stock has stagnated over
the past year. The movie business is rolling and theme parks are
showing steady and solid growth — with Shanghai Disneyland Park set to
give that division a boost when it opens next month — but TV still makes
up the biggest part of the company’s financial picture, at 44 percent
of revenue and 60 percent of profits. And that's where growth is not as
solid.
Disney’s sports behemoth ESPN has shed about 7
million subscribers since 2013, and profits in its media network
division dipped 6 percent during the first quarter, which ESPN
attributed to the timing of the college football playoffs — which
themselves suffered from poor ratings — and higher sports rights costs.
But that division bounced back on the bottom line — if not the
top — during the second quarter, posting effectively the same revenue as
in the prior year, but with a 9 percent increase in profit. And it was
ESPN that led the charge, as its higher profits, which Disney pinned on
lower programming costs and an increase in affiliate revenue, balanced
out declining profits on the broadcasting side and among Disney’s other
cable channels.
This year’s made-for-TV election season — for
better and worse — has been a ratings and advertising boon for
competitors such as Time Warner’s CNN and Fox’s Fox News, but Disney
does not own a cable news network. And ABC’s ratings declined about 15
percent during the quarter, according to a May 3 research note from
Piper Jaffray analyst Stan Meyers.
At February’s Code/Media conference in
Southern California, ESPN President John Skipper acknowledged that a
reason ESPN had lost more subscribers than some other cable networks was
because it was not part of “skinny” bundles streamed via the internet
such as Dish’s Sling TV and Sony’s PlayStation Vue, which it now is. On
the call, Iger said ESPN is engaged in conversations with other
over-the-top streaming providers, and said the proliferation of such
companies will have a “meaningful effect on the marketplace” for Disney.
He said there are plenty of new entrants, and all of them want ESPN.
“The conversations we’ve had are quite productive,” Iger said. “We just have no new deals to announce as of today.”
Disney’s other big concern is figuring out who
fills the formidable shoes of Iger, whose presumed heir, former Chief
Operating Officer Thomas Staggs, left the company after the board
effectively gave him a vote of no confidence. Since Iger took over in
2005, the company’s stock has tripled, as he made a series of successful
acquisitions, including Pixar, Lucasfilm and Marvel.
“Tom was a valued colleague and friend of mine
and everyone at the company, and I’m really sorry what came to pass,”
Iger said in response to a question on the call. He declined to comment
further on Staggs, other than to say that Disney’s board is actively
engaged in a succession process and that he has no plans to extend his
contract past its current expiration date of June 2018.
Revenues and profits from Disney’s consumer
products and interactive media division fell during the quarter, which
it attributed to a particularly strong dollar in key foreign markets.
That blunted the impact of “Star Wars” merchandise sales.
Iger made sure to spend a decent amount of
time highlighting Disney’s thriving parks and resorts business. Dynamic —
or “surge” pricing — contributed to a 20 percent growth in domestic
theme park operating income and enhanced margins. Total theme park
profits for the quarter were held back somewhat by pre-opening spending
at Disney’s new China park, which is opening next month. Disney is also
planning to add two more cruise ships, coming off what Chief Financial
Officer Christine McCarthy said was Disney Cruise Line’s best first half
of the year ever.
On the other hand, Disney also announced
Tuesday that it would be shuttering its Infinity gaming business, which
integrates physical toys with video games, preferring to go back to
licensing Disney content for other consoles.
“We just feel that it’s a changing space and
we’re just better off at managing the risk that business delivers by
licensing instead of publishing,” Iger said on the call.
Disney’s stock closed at $106.65 Tuesday, up 1
percent on the day. Shares have risen a little more than 1 percent so
far this year, but are down 3 percent over the past 52 weeks.
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