Disney Gets Boost from Court in Ovitz Case, Reports Earnings

Aug 9, 2005  •  Post A Comment

The Walt Disney Co. scored a couple of big wins Tuesday as the company reported robust fiscal third-quarter results around the same time a Delaware judge ruled in the company’s favor in deciding that the board of directors did not violate its fiduciary duty to shareholders in the hiring and firing of Michael Ovitz nearly a decade ago.

The court ruling was a victory for the media giant, which has found itself in a years-long legal tussle with shareholders who accused Disney directors of shirking their duty in hiring Mr. Ovitz as president in 1995 and then firing him after 14 months and paying him $140 million in severance. Shareholders had sought more than $260 million in damages, challenging, among other things, the severance payment to Mr. Ovitz.

The ruling came just as Disney issued its fiscal third-quarter results, which showed the company’s profit surging 41 percent to $851 million for the three months ended July 2, versus a year-earlier profit of $604 million. Revenue was up 3 percent to $7.7 billion, as the company’s television assets posted growth that offset declines at the film studio and consumer products divisions.

The company’s media networks division saw its revenue surge 16 percent to $3.4 billion and its operating income jump 48 percent to $998 million. The company attributed the division’s gains to affiliate-fee increases at ESPN as well as improved ratings and advertising revenue performance at ABC.

CEO-elect Robert Iger said that ratings increases at ABC allowed the network to book $2.7 billion in upfront sales, a 30 percent increase over the 2004 figure. The network also attracted 20 new advertisers. ESPN’s upfront was not over on Tuesday, but Mr. Iger said the network is “doing extremely well, outpacing the market.”

Looking ahead, the company remains bullish on the DVD prospects of television series such as “Desperate Housewives” and “Lost,” the former of which is generating strong ratings internationally, which Mr. Iger said could bode well for global DVD sales of the first season, which is set to launch next month.

Outgoing CEO Michael Eisner added that in addition to global DVD sales, the company is exploring the potential for new revenue streams from making television series available on a video-on-demand and/or pay-per-view.

“The new digital marketplace beyond DVD and home video is encouraging,” Mr. Eisner said during the company’s earnings conference call.