Walt Disney Co. reported a strong Q2 and showed that it is feeling little economic headwind in its core businesses. All segments showed profit growth, though revenue was slightly lower at ABC and the local stations are suffering through a very tough local ad market.
Overall, though, its been the most upbeat media earnings call of the quarter. CEO Bob Iger says Disney’s parks, thought to be vulnerable to the economy, are actually benefiting from it as consumers choose Disney over other attractions. That and the weak dollar is bringing increased foreign visitors.
Disney reported Q1 revenue up 10% to $8.7 billion and net income up 22% to o$1.1 billion from the same quarter last year. Earnings per share came in at $0.58, handily beating Thompson’s average estimate of $0.51.
Q2 CALL NOTES:
CEO Bob Iger’s discusses Disney’s Q2. Call begins with Iger’s preamble:
Iger: I believe our creative pipeline has never been stronger. We are also tremendously enthusiastic about Disney Channel. With a new season of shows coming up, the Hannah Montana and Mylie Cyrus franchise remains tremendously robust… Given the economic environment we are pleased with the performance of our parks and resorts. Several reasons why they have been resilient. They offer a unique experience that is simply not available elsewhere.
4:45 p.m: Hands off to CFO Tom Staggs who goes through the numbers.
Staggs mentions that ABC network (revenue down 2%) lower ratings were offset by a strong last-minute “scatter” advertising market and lower costs due to fewer scripted shows during the writers strike.
Staggs says ad pacings are down mid-single-digits from last year.
Q&A starts:
Can you comment on the potential of an actors’ strike and you plans?
Iger: the AMPTP and SAG are meeting as we speak. Because the talks are ongoing it wouldn’t be appropriate for me to discuss. The fact we did deals with the writers and directors should signal our position on the critical issues. SAG is aware of that.
Can you comment on the impact of Blu-ray?
Iger: The penetration of Blu-ray players is modest. The real impact will be down the road, with titles like Nemo, and others coming out. We see the cost coming down to $300 and a lot less inventory on shelves. We are believers but it will take time for the platform to penetrate the marketplace. The cost of a Blu-ray disc is $2 higher than standard def and that benefits us.
Are you as bullish on day-and-date movie releases as Warner Bros?
Iger: We have been in the marketplace with an experiment with Comcast. They have not been conclusive. They have not had a negative impact on DVD, but modestly postiive. Over the next 5 years more movies will become available day and date on VOD, and through Apples iTunes. This will be positive to our business. The DVD physical goods will continue to dominate the marketplace. But we are positive about other forms of delivery.
Can you talk about the impact of 3-D on the budget per film? Will you price 3-D movies different at the theater? Retail?
Iger: The cost of producing a 3-d movie is 25% more for live action and about the same for an animated film. We are bullish. It gives us the ability to price higher and because the experience is better it will bring more people to the movies.
It seems like ABC ratings drove the decline in revenue. Now that you’re back with programming do you think ABC network revenue will return to what it was before (the strike)?
Iger: We believe from a revenue and ratings perspective we are seeing positive trends. Scatter pricing is up over 50% over the upfront in the first quarter. ABC is well positioned for the upfront because we will return incredibly strong programming like Greys Anatomy, Dancing With Stars to lineup. It puts us in a position to grow CPMs. Upfront combined with strong scatter we think we are in good shape in terms of revenue for the rest of the year.
How will you approach the management of Disney stores? How different than before?
Iger: There will be a new management team. In terms of number of stores we have not made a decision. Probably fewer rather than more. Better locations in places like malls. We think the most important thing is to get into the stores a higher quality of products that better represents our shows like Hannah Montana, films like Cars, etc. We had 500 stores at one point. Now we have 220 or so and will probably go less. We will be more focused.
Update on video game production?
Staggs: We will invest $200 million in our own game titles this year. We are very encouraged so far. We will continue to ramp up spending. As we look down the road we will have created another vibrant line of business skewed toward Disney properties that are already established. It wil lnot contribute to the bottom line in 2008.
Iger: We have seen a demographic expansion among game consumers. Younger kids and more girls. That is great benefit to Disney. That is product of Nintendo DS and the Wii. Our games are playing well on these new platforms.
Is it logical to expect theme park revenue to continue to be up in the second half?
Staggs: We’ve got a reversal of the Easter comparison in the first quarter. We dont want to ake predictions fro q3 or q4. Bookings are up for both quarters.
Iger: even though Easter shifted into second quarter the first month of the new quarter was very strong at Disney World. We are benefiting from the dollar weakness. We have extended length of stay, which was a primary goal. We now have 75% of hotel rooms in hotel rooms in moderate to value priced category. Back in last recession 55% of our rooms were premium priced. These rooms are now more accessible to more people. We think these factors are contributing to our strong results.
Revenues for Disney Channel?
Staggs: HS Musical and Hannah Montana are important drivers. The creative pipeline feels very robust; we think those franchises can continue to deliver.
Can you quantify what primetime ratings actually are season-to-date and what do you think the strike took away?
Iger: There are too many apples to oranges comparisons in ratings to last year. The focus on sales is commerclal ratings plus 3. Ratings were slightly down from where they were last year before the strike, but then the strike hit and now its hard to compare.
What are ad trends at ESPN and local stations? Seems like a big gap between local and national ad trends
Staggs: ESPN is seeing mid-to-high single digits over last year. Stations are down single-digit percentages from last year. One driver of our growth was Lifetime and A&E which had good ad sales. Local vs national … we are gaining share locally. We have strong set of managers at our stations which do a great job of capturing share. We only have 10 stations in major markets–we think they are better insulated from the economy.
Cable network margins are improving; will that continue? Do you need to acquire a video game studio?
Staggs: ESPN is driving margins at cable networks. Sports rights are locked in for next several years, giving us leverage. We feel there is more we can do in terms of margins at the cable networks.
Iger: On games we are comfortable with the developers we bought. We never expected to go to zero to 60 in a second. We are taking a patient approach. I remain open to buying more development teams and talent if they can fuel growth. See games growing not just on consoles but also online.
Comment on possible acqusitions in cable?
Iger: In the cable business we are more bulllish on channels that are branded and specific in their approach. We are less interested in general networks that are less focused and commoditized.
EARNINGS FIRST TAKE:
Walt Disney Co. (DIS) turned in a strong Q2, beating estimates for EPS, net income, and revenue. We’ll take a closer look at the numbers, but it appears that the economy hasn’t a taken a toll on Bob Iger’s ad sales or theme park revenue.
Disney’s Q2:
Revenue: $8.7 billion (up 10%) vs Thompson financial average estimate of $8.47 billion
EPS: $0.58 vs $0.51 estimate
Net Income: $1.1 billion (up 22%) vs $997.2 million Bloomberg average estimate.
Disney showed Q2 profit growth across all segments, including media networks (5%), parks and resorts (11%), studio entertainment (18%) and consumer products (10%). Hobbled by the writers strike, the ABC TV network saw revenue decrease 2% in the quarter, but like CBS, ABC benefited from less spending on content, and network profits rose 17%.
ESPN (NYSE: DIS) is buying Racing-Live.com, an independent motorsports site founded way back in 1995. Racing-Live.com claims three million monthly uniques and has four sites – F1-Live.com, Moto-Live.com, Rally-Live.com and Raid-Live.com – covering F1, Moto GP, superbikes, rally, sports cars and karting. It was started by Montpellier-based racing fan Michel Marvie – who first began publishing motorosport news to France’s Minitel in the 80s - and has grown to offer live race updates and news in English, French, Japanese, Italian, German and Spanish.
Updated: Is it? That’s been the speculation for a long time now, and Sharon Waxman, the former NYT reporter, says that Hollywood Reporter and the other 41 trade papers in Nielsen Business Media division is up for sale, citing “two solid sources.” If true, this means that both the major Hollywood trades are on the block, with Variety (as part of Reed Business Information) being in the middle of a sale process as well.
Major executive changes at the Disney (
