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World Cup Soccer, 'Toy Story 3' help propel Disney's third-quarter earnings

August 10, 2010 |  4:50 pm

ESPN's World Cup soccer coverage and the strong box-office performance of films including Disney/Pixar Animation Studios' "Toy Story 3" helped buoy the Walt Disney Co.'s bottom line in the third quarter.

The media giant reported a 40% jump in earnings to $1.3 billion, up from $954 million a year earlier. Revenues reached $10 billion for the three-month period ending July 3, an increase of 16% from a year ago.

In a call with analysts, Walt Disney Co. Chief Executive Robert A. Iger highlighted the film studio's summer performance, noting that it released three of the top five films worldwide in "Toy Story 3," Disney's "Alice in Wonderland" and Marvel Entertainment's "Iron Man 2." The three pictures were not only a financial success but have fueled other businesses such as merchandise sales, he said.

" 'Toy Story' merchandise sales reached new heights as consumers responded to a fresh line of well-designed products available globally," Iger said. And this bodes well for Pixar's next feature film, "Cars 2," due out in June.

The film studio reported operating income of $123 million compared with a loss of $12 million a year earlier. Revenues rose 30% to $1.6 billion. Disney said it had to write off the costs of "a couple of film titles," but it did not identify which movies fell short of financial projections — or by how much. Also in the quarter, Disney released the big-budget Jerry Bruckheimer-produced movie "Prince of Persia: The Sands of Time," which grossed a disappointing $90 million domestically but sold $238 million worth of tickets overseas.

Iger said that the declining DVD business has become more dependent on the popularity of specific titles. With the changing marketplace, Iger said the company would become "aggressive" in experimenting with how soon it release its movies to the home through video-on-demand services. Other Hollywood studios are mulling making movies available to the home before their DVD release. Iger declined to talk about the timing or provide other specifics.

"It's too early to make predictions on that," Iger said. "I think it presents an interesting opportunity. There are people who we believe would like to see movies sooner rather than later and would pay a premium price on that."

Iger said ESPN's soccer coverage as well as its broadcasts of the NBA Finals in which the Lakers defeated the Boston Celtics contributed to a "fantastic quarter both creatively and commercially" for Disney's Media Networks group. That division includes the company's network, cable television channels and locally owned stations.

Disney's cable networks revenue rose 28% to $3.2 billion for the quarter from $2.6 billion a year ago. Operating income soared 50% to $1.7 million. The broadcast group's operating income was up a modest 2% to $209 million, with advertising effectively flat.

Iger addressed the recent executive upheaval at Disney's ABC network, in which Entertainment Group President Steve McPherson abruptly resigned, by speaking only about his successor, Paul Lee, the former president of ABC Family. He touted Lee's successful track record in running the cable channel for six years and creating hits such as "Secret Life of the American Teenager" and "Pretty Little Liars."

"Paul Lee is a proven leader and skilled at developing hit shows that put ABC Family on the map as an identifiable brand," Iger said.

One analyst asked Iger whether the investors should brace for a broader management shakeup at the network, akin to the house-cleaning at the film studio last fall that swept out studio Chairman Dick Cook and brought in former Disney Channels Worldwide President Rich Ross.

Iger deflected the question and talked bout how the network is seeking to build on aging prime-time hits "Desperate Housewives" and "Grey's Anatomy" and last-season successes "Modern Family" and "Castle."

"We were pleased in general with some of the recent developments, and we feel that the schedule they put together for the fall is a good, solid schedule," Iger said.

Iger also declined to address questions about whether he was weighing "potentially selling ABC."

"I don't have anything new to add to the discussion about the makeup of our asset base," Iger said.

Digital media is becoming more of a strategic focus for Disney. However, for now, the company's Interactive Media group, is a drag on the bottom line. The group reported a loss of $65 million, slightly less than the $75-million operating loss it showed a year earlier. It brought in revenues of $197 million, up 74% from the comparable period a year ago.

Iger devoted much of the call to discuss Disney's $563 million acquisition Playdom, which develops games for social networks like Facebook. He said interactive entertainment has diversified beyond console gaming to a broader audience that enjoys playing games on social networks and on devices.

"The customer base is pretty diverse, from 18 to post 50," Iger said. "It's dual-gender. It doesn't skew just in the men's direction, which we know a lot of other games do. It seems tailor-made not only for Disney branded games, but for Marvel and ESPN. We really liked the opportunity."

— Dawn C. Chmielewski


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