One of the problems with being Disney is that you are in so many businesses that it’s rare for everything to be going in the same direction at the same time. You might have a couple of blockbuster movies out, but the theme park business is going sideways, or your sports network is under pressure because of cord-cutting, or your video game unit is under water.
There was more than a little of that happening in Walt Disney Co.’s latest quarter. The big headline was that the company missed earnings estimates for the first time in five years, and that helped push the share price (DIS) down by more than 6% at one point in after-hours trading. But there wasn’t any large-scale disaster that caused this to happen—more like a series of small misses.
The company reported adjusted earnings of $1.36 per share on $12.97 billion in revenue for the quarter, while most analysts expected $1.40 per share in profits on $13.2 billion in revenue.
One thing that is firing on all cylinders is Disney’s movie business, thanks to hits such as the new Captain America: Civil War and Jungle Book, as well recent blockbusters like Zootopia. According to CEO Bob Iger, films from the company’s Marvel, Pixar and Lucasfilm studios have produced global box-office revenues of more than $3 billion already this year. Movie revenue was up more than 22% in the latest quarter and operating income was up 27%.
Something that hasn’t been going quite as well, however, is the company’s push to build a standalone video-game business. The Infinity line of games, which involved software that synchronized Disney action figures with a video game, cost the company more than $100 million to develop, but never had the financial impact the company was hoping for. Disney announced Tuesday that it would shut the unit down and take a $147 million charge against its earnings.
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Unlike some previous quarters, during which investors were hyper-sensitive to changes in ESPN’s subscriber numbers and concerned about the impact of cord-cutting, ESPN didn’t generate much in the way of concern this time around, perhaps in part because companies like Comcast have shown that some of the fears around cord-cutting may have been overstated. ESPN’s profit actually rose in the quarter due to lower programming costs and higher affiliate revenues.
Iger also said it Disney is fairly happy with current digital distribution deals such as the one it has with Dish Network’s “over the top” service SlingTV, which he said are producing “incremental” subscriber additions for ESPN. And he said the company is also working with a number of other similar services that are coming to market, including one from Hulu—which Disney co-owns with 21st Century Fox and Comcast (the latter is a silent partner because of its NBCUniversal ownership).
The Hulu service shows the extent to which the interests of content creators and distributors are overlapping in the new digital landscape (Google is also said to be working on a similar service that would be offered by YouTube, but hasn’t signed any content deals yet). And Disney’s interest in running its own streaming service raised concerns that it might get some blowback from current distribution partners such as Comcast.
Iger apparently isn’t worried about this at all, however. The Disney CEO told analysts on the company’s conference call that since a number of the company’s distribution partners are in the content-creation business—”notably Comcast and NBCUniversal”—he doesn’t think there should be any impact at all on Disney for being part of a streaming service like Hulu.
Not only that, but Disney is looking at working with as many other alternative digital distribution services as it can, Iger says. Although the Disney CEO didn’t mention any one in particular, he said that many of these newer services “offer consumers a lot more choice, and they are typically better at mobile and they often have a better user interface” than existing services like cable. In other words, don’t get too comfortable, Comcast (CMCSA).
