Disney takes beating from economy

Aug 6, 2001  •  Post A Comment

Advertising and TV season ratings declines finally caught up with The Walt Disney Co.’s resilient owned stations and dominant cable networks, driving down the operating income at its media networks 29 percent last quarter.
The weak economy took its toll on all of the company’s advertising-supported media, theme parks and consumer products.
Media network operating income was $470 million on a 6 percent decline in revenues to $2 billion in the fiscal third quarter ended June 30. Broadcast earnings declined 42 percent to $244 million on a 12 percent decline in revenues to $1.3 billion. Still, Disney officials said they would maintain their TV stations’ 40 percent cash flow margins.
Cable network operating income declined 6 percent to $226 million on a 7 percent increase in revenues to $814 million in the period. At the parks and resorts, operating income and revenue were flat. The company reversed its studio performance from a year-earlier $1 million loss to $65 million in operating income on an 8 percent rise in revenues to $1.3 billion.
Overall, Disney reported a 3 percent decline in net income to $479 million, excluding restructuring and other charges, with diluted earnings per share remaining flat at 23 cents per share. Pro forma operating income for the quarter declined 7 percent to $1.1 billion on flat revenues of about $6 billion. The company is maintaining its fiscal fourth-quarter guidance.
Many analysts lowered their fiscal fourth-quarter, year-end financial and 2002 estimates on Disney due to weaker broadcast returns, which also have noticeably hurt many major ABC-affiliated groups, such as Hearst-Argyle Television.
Disney Chairman Michael Eisner and President Bob Iger said the company will weather the latest blows by reducing expenses beyond the $700 million to $800 million in cost cuts already earmarked, exceeding the $500 million in savings and 4,000 headcount reduction originally targeted. They also are determined to improve ratings at the broadcast network, stations and cable networks, even with tough comparisons to last year’s Olympics and the popularity of “Who Wants to Be a Millionaire.”
Instead, Mr. Eisner and other Disney officials made a case for owning more content than distribution in tough times, despite their recently announced plans to acquire Fox Family Channel for $5 billion. Mr. Eisner said Disney would not transform it into a “repeat channel,” but that time-shifted and dual-purpose programming are important strategies for increasing cash flow.