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Backed by movies, Disney reports record quarterly earnings of $2.5 bn

MUMBAI: US media conglomerate Disney has reported record quarterly earnings of $2.5 billion for its third fiscal quarter ended 27 June 2015 compared to $2.2 billion for the prior-year quarter. Movies played a big role in this.

Revenues for the quarter rose to $ 13.1 billion from $ 12.4 billion. Segment operating income rose to $ 4.1 billion from $3.8 billion.

Disney chairman, CEO Robert Iger said, “We’re very pleased with our performance in the third quarter, with record net income and diluted earnings per share of $1.45, up by 13 per cent from the prior year. The strong results across our many diverse lines of business demonstrate the power of our unparalleled brands, franchises and creative content.”

Media Networks: Media networks revenues for the quarter increased by five per cent to $5.8 billion and segment operating income increased by four per cent to $2.4 billion.

Cable Networks: Operating income increased by seven per cent to $2.1 billion for the quarter due to growth at the domestic Disney Channels, ABC Family and ESPN. The increases at the US Disney Channels and ABC Family were due to higher program sales and increased affiliate revenue, driven by contractual rate increases. Program sales growth reflected increased subscription video on demand (SVOD) distribution revenues in the current quarter. Operating results at ESPN were driven by growth in affiliate revenue, partially offset by lower ad revenue.

The increase in affiliate revenues was due to contractual rate increases and an increase in subscribers. The increase in subscribers was due to the new SEC Network launched in August 2014, partially offset by a decline in subscribers at certain of the media conglomerate’s networks. The impact of contractual rates and subscribers on affiliate revenue was partially offset by a decrease due to the recognition of $176 million of previously deferred revenue in the prior-year quarter related to annual programming commitments. As a result of changes in contractual provisions, ESPN did not recognise any deferred revenue in the current quarter.

Lower advertising revenues reflected lower ratings and rates, partially offset by more units sold driven by NBA playoff games. Lower rates reflected the benefit of World Cup soccer in the prior-year quarter. ESPN programming and production costs were relatively flat in the quarter as the addition of the SEC Network and higher rights costs for NBA programming were essentially offset by the absence of rights costs for Nascar and World Cup soccer.

Broadcasting: Operating income decreased by 15 per cent to $300 million for the quarter driven by higher programming costs, lower advertising revenue and higher labour related costs, partially offset by growth in affiliate fees and higher program sales revenue from SVOD distribution. Higher programming costs were driven by increases in the average cost of prime time programming and pilot costs in the current quarter. Lower ad revenues reflected decreased news and daytime ratings, partially offset by higher rates. Affiliate fee growth was due to new contractual provisions and contractual rate increases.

Studio Entertainment: Revenues for the quarter increased 13 per cent to $2.0 billion and segment operating income increased by 15 per cent to $472 million. Higher operating income was due to an increase in theatrical distribution, growth at international television distribution and a higher revenue share with the Consumer Products segment. These increases were partially offset by a decrease in home entertainment and higher film cost impairments.

The increase in theatrical distribution reflected the strong performance of Marvel’s ‘Avengers: Age of Ultron’ in the current quarter compared to Marvel’s ‘Captain America: The Winter Soldier’ in the prior-year quarter. Theatrical results in the current quarter also benefited from the continuing performance of ‘Cinderella’, which was released in the second quarter of the current year. These increases were partially offset by the strong international performance of ‘Frozen’ in the prior-year quarter and the results of ‘Tomorrowland’ in the current quarter.

The growth in international television distribution included sales of ‘Star Wars’ titles, while the increased consumer products revenue share was primarily due to the performance of ‘Frozen’ merchandise. The decrease at home entertainment reflected lower unit sales due to the performance of ‘Frozen’ in the prior-year quarter compared to ‘Big Hero 6’ in the current quarter.

Consumer Products: Revenues for the quarter increased by six per cent to $954 million and segment operating income increased by 27 per cent to $348 million. Higher operating income was due to an increase in merchandise licensing revenues and lower third-party royalty expense. Merchandise licensing revenue growth reflected the performance of merchandise based on ‘Frozen’, ‘The Avengers’ and ‘Star Wars’ partially offset by lower revenues from ‘Spider-Man’ merchandise.

Interactive: Revenues for the quarter decreased by $58 million to $208 million and segment operating income decreased by $29 million to break-even. Lower operating income was primarily due to lower results from Disney Infinity and decreased sales of console game catalogue titles, partially offset by the continued success of Tsum Tsum. The decrease from Disney Infinity was due to decreased unit sales and lower average net effective pricing.