Walt Disney Studios had a much more magical earnings report than analysts had expected. The entertainment powerhouse behind Pixar, Marvel, and the world’s most trafficked theme parks logged earnings per share of $1.84, a 3% drop from $1.89 in the prior-year quarter. Disney also reported revenue of $15.3 billion, essentially flat with the year-ago period. Those results beat estimates. Wall Street was looking for earnings per share of $1.55 on revenue of $15.18 billion. The better-than-anticipated financial picture is attributable to higher broadcast revenues and the increased popularity of its parks, bright spots that off-set declines in Disney’s film division. The company faced difficult comparisons because it did not field any “Star Wars” sequel or spinoff during the holidays for the first time in four years. The lack of a “Star Wars” film also took a bite out of licensing profits. The earnings were announced as Disney is preparing to absorb much of 21st Century Fox’s film and television assets. The $71.3 billion merger is a transformative one that will have long-term affects on the media landscape. The sale could close as soon as this month. Disney hopes that by adding such Fox brands as FX and Nat Geo to its roster, as well as attractive film and television franchises such as the “X-Men” and “Avatar,” it will be well armed against digital upstarts such as Netflix. To that end, Disney is readying its own streaming service Disney+, which it plans to launch in 2019. Details are starting to leak out about the Netflix challenger. Disney has commissioned a live-action “Star Wars” spinoff series, “The Mandalorian,” that will boast Jon Favreau as the showrunner, and is developing “Avengers” standalone series based on characters such as Scarlet Witch and Loki. This content comes with a hefty price tag — it also requires Disney to forgo traditional sources of revenue. Disney makes hundreds of millions of dollars licensing its shows and films, but it is pulling that content off of services such as Netflix in order to put it on its own platforms. “Building a robust direct-to-consumer business is our top priority, and we continue to invest in exceptional content and innovative technology to drive our success in this space,” Disney chairman and CEO Bob Iger said in a statement. In a call with analysts following the report, Iger reaffirmed the commitment, saying, “This is a bet on the future of this business” and predicting that “long-term this business will become an important part of Disney’s bottom line.” Disney’s film unit released the hits “Mary Poppins Returns” and “Ralph Breaks the Internet” during the final three months of 2018, as well as the box office bomb “The Nutcracker and the Four Realms.” Film revenues for the quarter decreased 27% to $1.8 billion and segment operating income decreased 63% to $309 million. Broadcasting revenues for the quarter climbed 12% to $1.9 billion and operating income increased 40% to $408 million, which Disney attributed to stronger ad sales and licensing fees it charged Hulu and Netflix. Cable revenues for the quarter increased 4% to $4 billion, but operating income at the division fell 6% to $743 million. Disney chalked up the drop in profits to higher programming costs at ESPN. Revenues in the parks division jumped 5% to $6.8 billion and operating income increased 10% to $2.2 billion. Disney said the better results were because of higher occupancy at its domestic resorts and an increase in guest spending on food and merchandise. Disney has started to break out direct-to-consumer revenues, a sign of the importance that the company and Iger are placing on the nascent business. For the quarter, revenue decreased 1% to $918 million and segment operating loss increased from $42 million to $136 million. That was partly due to costs associated with the launch of ESPN+, the streaming arm of the sports channel which debuted in April 2018. The company is also attributing some of those losses to the expense of creating Disney+. ESPN+ has 2 million subscribers, more than doubling its paying customers in six months, Iger said. Disney has been a favorite of theater owners, not just because it makes blockbusters such as “Black Panther” and “Star Wars: The Last Jedi,” but due to its support of traditional theatrical windows. The exhibition space is under pressure from other studios to allow them to release movies on home entertainment platforms within weeks of their debuts in cinemas. Iger said that Disney+ will operate with traditional windows, but he did leave the door open for a possible change, telling analysts that there may be an “opportunity down the road to adjust the windowing.” Disney shares closed Tuesday at $112.66, up just under 1%. The stock continued to climb in after-hours trading.<doc-sep>A scene from Solo: A Star Wars Story. Source: Disney If Disney's first-quarter earnings are any indication, the media company could benefit from the Force in December. In 2015, after decades of "Star Wars" films appearing in theaters in May, Disney decided to release its newest trilogy in December. Since then, every "Star Wars" film, even the "Rogue One: A Star Wars Story" has debuted just before Christmas, except one. "Solo: A Star Wars Story" found itself with a May release and that was detrimental to both the film and the company behind it. In 2017, Disney released "Coco," "Thor: Ragnarok" and "The Last Jedi" during the first quarter. Together the three films made more than $1 billion at the box office in the U.S., according to data from Comscore. Cut to 2018. Disney released "The Nutcracker and the Four Realms," "Ralph Breaks the Internet" and "Mary Poppins Returns" and earned only $388 million domestically. "Star Wars: The Last Jedi" brought in more than $500 million in the U.S. between Dec. 15 and Dec. 31 and continued to make money well into the second quarter. Not only was it a box office hit, it also drove sales of toys, apparel and other merchandise. "The theatrical success of 'Star Wars: The Last Jedi' in Q1 last year was a key driver to licensing results so the absence of a comparable franchise title in Q1 this year created a meaningful headwind to our licensing results," Christine McCarthy, Disney's chief financial officer, said during an earnings call Tuesday. Without a big blockbuster like "Star Wars" in December, Disney missed out on money at the box office and through retail. "Home Entertainment results also faced a difficult comparison given Q2 titles last year included 'Star Wars: The Last Jedi,' 'Thor: Ragnarok' and 'Coco,'" McCarthy said. "As a result we expect operating income from our theatrical and home entertainment businesses to be $450 million to $500 million lower than in Q2 last year, which was the best second quarter in the studio's history." "Solo" faced a number of issues ahead of its release, prompting some to suggest that Disney regroup and push the release date from May to December. To start, there was behind-the-scenes issues the caused directors Phil Lord and Chris Miller to leave the project three-quarters of the way through principal photography. The pair had about three and a half weeks of shooting left and five weeks of already scheduled reshoots to complete. Ron Howard was brought on to salvage the project.<doc-sep>
Chief executive officer and chairman of The Walt Disney Company Bob Iger walks on the floor of the New York Stock Exchange (NYSE) before ringing the opening bell, November 27, 2017 in New York City. Walt Disney reported earnings per share and revenue that topped analyst estimates Tuesday, helped by sales increases in its media networks and theme parks businesses, as the company said its sports streaming service ESPN+ now has 2 million paid subscribers. The earnings report comes as the entertainment giant expands its direct-to-consumer offerings amid growing competition from Netflix and other streaming services. On the company's post-earnings conference call, CEO Bob Iger said that ESPN+ had doubled its subscribers in the past five months, noting that direct-to-consumer "remains our No. 1 priority." Here are the results: —Earnings: $1.84 per share, vs $1.55 per share expected, according to Refinitiv —Revenue: $15.30 billion, versus $15.14 billion expected, according to Refinitiv Revenue was down slightly from $15.35 billion a year ago while adjusted earnings per share fell 3 percent from $1.89. Shares were up 45 cents to $113.11 in extended trading, after rising 2 percent earlier. Disney, whose assets include cable networks such as ESPN and film studios like Marvel, is making a push into streaming services as more consumers drop their pay-TV package in favor of cheaper options that can be watched through an internet connection. The company launched ESPN+ last year and plans to launch Disney+, a streaming service of its movies and original programming, later this year. The company said that its direct-to-consumer and international segment posted revenue of $918 million and an operating loss of $136 million in its first quarter ended Dec. 29. due to increased costs related to ESPN+ and the upcoming launch of Disney+. On the earnings call, Disney said that it expects investment in those ventures to negatively impact the segment's year-over-year operating income by $200 million in the second quarter. Revenue in Disney's media networks business, which includes ESPN, rose 7 percent to $5.92 billion in the first quarter, compared to the year-earlier period, while its parks business was up 5 percent to $6.82 billion. Studio entertainment revenues fell 27 percent to $1.8 billion thanks to the strong performance of "Star Wars: The Last Jedi" and "Thor: Ragnarok" in the prior-year quarter compared with "Mary Poppins Returns" and "The Nutcracker and the Four Realms" this year. The company expects its pending $71.3 billion acquisition of a majority of assets from Twenty-First Century Fox to aid its strategy in streaming. The deal is expected to provide Disney with additional media assets for its new streaming service and would also give Disney a larger stake in the streaming service Hulu. But Disney's direct-to-consumer push comes with risks: It's hard to turn a profit on streaming services, which usually entail high content and technology costs but offer lower prices than traditional cable to attract consumers. Disney said in a filing in January that its stake in Hulu and its ownership of BAMtech, the streaming technology that powers ESPN+, led to a loss of more than $1 billion in the 2018 fiscal year. Disclosure: Comcast, which owns CNBC parent NBCUniversal, is a co-owner of Hulu.