Advanced Television

Disney Q1 profit up 78%

February 7, 2018

The Walt Disney Company has reported a 78 per cent increase in profit for the first quarter, thanks largely to a huge tax gain.

Disney’s Q1 profit jumped to $4.42 billion (€3.58bn) from $2.48 billion last year. Earnings for the quarter included a $1.6 billion one-time tax benefit associated with new US federal income tax legislation. Revenues for the quarter increased 4 per cent to $15.35 billion from $14.78 billion last year.

“The strategic investments we’ve made have driven meaningful growth over the long term, and we remain confident in our ability to continue to deliver significant shareholder value,” commented CEO Robert Iger. “We’re excited about what lies ahead, with a robust film slate, the launch of our ESPN direct-to-consumer business, new investments in our theme parks, and our pending acquisition of Twenty-First Century Fox.”

In December, Disney agreed to buy assets of Twenty-First Century Fox for over $52 billion. Late last year, Disney also revealed plans to launch a Disney-branded streaming service in 2019, which will signal the end its content distribution deal with Netflix.

In a statement offering a breakdown of company segements, Disney offered the following figures:

Cable Networks

Cable Networks revenues for the quarter increased 1 per cent to $4.5 billion and operating income decreased 1 per cent to $0.9 billion. Lower operating income was due to a loss at BAMTech and a decline at ESPN, partially offset by growth at the Disney Channels and Freeform.

In the current quarter, BAMTech’s operating loss is reported in Cable Networks as a result of our acquisition of a controlling interest in the fourth quarter of fiscal 2017. The Company’s share of BAMTech results was previously reported in equity in the income of investees. The loss at BAMTech reflects ongoing investments in their technology platform.

The decrease at ESPN was due to lower advertising revenue, partially offset by affiliate revenue growth and lower programming costs. Lower advertising revenue was due to a decrease in impressions and lower rates. The decrease in impressions reflected lower average viewership and fewer units delivered. Rates and average viewership were negatively impacted by the shift in timing of College Football Playoff (CFP) games. The current quarter included three “host” bowl games, whereas the prior-year quarter included one host game and two semi-final games. Semi-final games generally generate more advertising revenue than host games. Affiliate revenue growth was due to contractual rate increases, partially offset by a decline in subscribers. Programming costs decreased due to the shift of the CFP games, partially offset by contractual rate increases for college sports and NFL programming. Semi-final games generally have a higher cost than host games.

Growth at the Disney Channels and Freeform was driven by higher affiliate revenue and lower marketing costs. Affiliate revenue growth was due to contractual rate increases, partially offset by a decline in subscribers. Results at Freeform also benefited from higher advertising and program sales revenues. The growth in advertising revenue was due to higher rates and an increase in impressions, which reflected more units delivered, partially offset by a decrease in average viewership.

Broadcasting

Broadcasting revenues for the quarter decreased 3 per cent to $1.8 billion and operating income decreased 25 per cent to $285 million. The decrease in operating income was due to lower advertising revenue, higher production cost write-downs and a decline in programme sales income. These decreases were partially offset by affiliate revenue growth due to rate increases.

Advertising revenues reflected fewer network impressions and lower political advertising at our owned television stations, partially offset by higher network rates. The decline in network impressions was due to a decrease in average viewership, partially offset by an increase in units delivered. The decrease in program sales income was due to a higher cost mix of programmes sold in the current quarter compared to the prior-year quarter

 

Studio Entertainment

Studio Entertainment revenues for the quarter were relatively flat at $2.5 billion and segment operating income decreased 2 per cent to $829 million as an increase in theatrical distribution results was more than offset by decreases in home entertainment and TV/SVoD distribution results as well as lower income from Consumer Products & Interactive Media segment revenue share.

The increase in theatrical distribution results reflected the success of Star Wars: The Last Jedi and Thor: Ragnarok in the current quarter compared to Rogue One: A Star Wars Story and Doctor Strange in the prior-year quarter. Other significant releases in the current quarter included Coco, while the prior-year quarter included Moana.

The decrease in home entertainment results was driven by lower unit sales reflecting the performance of Cars 3 in the current quarter compared to Finding Dory in the prior-year quarter.

Lower TV/SVoD distribution results were primarily due to a decrease from pay television driven by the domestic availability of two key titles in the prior-year quarter compared to one key title in the current quarter. The prior-year quarter included Captain America: Civil War and Jungle Book, while the current quarter included Guardians of the Galaxy Vol. 2.

Parks and Resorts

Parks and Resorts revenues for the quarter increased 13 per cent to $5.2 billion and segment operating income increased 21 per cent to $1.3 billion. Operating income growth for the quarter was due to increases at our domestic parks and resorts, cruise line and vacation club businesses as well as at Disneyland Paris. Domestic results benefited from the comparison to the impact of Hurricane Matthew, which occurred in the prior-year quarter.

Consumer Products & Interactive Media

Consumer Products & Interactive Media revenues for the quarter decreased 2% to $1.5 billion and segment operating income decreased 4 per cent to $617 million. Lower operating income was due to decreases at our merchandise licensing and retail businesses, partially offset by an increase at our games business.

The decrease at merchandise licensing was due to unfavourable timing of minimum guarantee shortfall recognition and lower licensing revenues from merchandise based on Frozen and Finding Nemo/Dory, partially offset by increases from merchandise based on Cars and Star Wars. Star Wars licensing revenue included the recognition of revenue from merchandise based on Star Wars: The Last Jedi that was deferred in the fourth quarter of fiscal 2017. Minimum guarantee shortfalls are generally recognized at the end of the contract period. For contracts that ended on December 31, minimum guarantee shortfalls were recognized in the prior-year first quarter compared to the second quarter of the current year.

Lower results at retail business were due to an unfavourable foreign currency impact.

The increase at games business was due to licensing revenue from Star Wars Battlefront II, which was released in the current quarter, whereas there was no comparable release in the prior-year quarter.

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