Disney Q4: Cable Up; Broadcasting Down

9 Feb

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The Walt Disney Company reported earnings for its first fiscal quarter ended December 31, 2011. Full-year Revenues increased 8% from 2010 to $29.0 billion, reflecting growth at the Networks and Filmed Entertainment segments. Media Networks revenues for the quarter increased 3% to $4.8 billion and segment operating income increased 12% to $1.2 billion.

Cable Networks

Operating income at Cable Networks increased $196 million to $967 million for the quarter due to growth at ESPN and, to a lesser extent, the worldwide Disney Channels. The increase at ESPN was driven by higher affiliate revenue reflecting contractual rate increases and a reduction in revenue deferrals related to annual program commitments. During the quarter, ESPN deferred $190 million of revenue compared to $266 million in the prior year quarter. The decrease was due to a change in the provisions related to annual programming commitments in an affiliate contract. Advertising revenues at ESPN were essentially flat as higher rates and units sold were offset by decreased ratings and a shift in the timing of the Rose Bowl, Fiesta Bowl and certain NBA games relative to our fiscal period end. Programming and production costs at ESPN were comparable to the prior-year quarter as the shift in the timing of college bowl and NBA games was offset by higher contractual rates for NFL and college football programming.
Higher operating income at the worldwide Disney Channels was due to increased advertising and affiliate revenue, partially offset by higher programming and production costs. Higher advertising revenue was driven by higher units sold and improved rates internationally. Affiliate revenue growth reflected subscriber growth internationally and contractual rate increases domestically.
Broadcasting
Operating income at Broadcasting decreased $69 million to $226 million driven by lower political advertising revenues at our owned television stations and higher marketing costs, partially offset by lower programming and production costs due to the absence of The Oprah Winfrey Show at the owned television stations. The increase in marketing costs was driven by an increase in the number of new series launches at the ABC Television Network. Advertising revenue at the ABC Television Network was essentially flat as higher advertising rates were offset by decreased ratings and units sold.

Cable Networks


Operating income at Cable Networks increased $196 million to $967 million for the quarter due to growth at ESPN and, to a lesser extent, the worldwide Disney Channels. The increase at ESPN was driven by higher affiliate revenue reflecting contractual rate increases and a reduction in revenue deferrals related to annual program commitments. During the quarter, ESPN deferred $190 million of revenue compared to $266 million in the prior year quarter. The decrease was due to a change in the provisions related to annual programming commitments in an affiliate contract. Advertising revenues at ESPN were essentially flat as higher rates and units sold were offset by decreased ratings and a shift in the timing of the Rose Bowl, Fiesta Bowl and certain NBA games relative to our fiscal period end. Programming and production costs at ESPN were comparable to the prior-year quarter as the shift in the timing of college bowl and NBA games was offset by higher contractual rates for NFL and college football programming.
Higher operating income at the worldwide Disney Channels was due to increased advertising and affiliate revenue, partially offset by higher programming and production costs. Higher advertising revenue was driven by higher units sold and improved rates internationally. Affiliate revenue growth reflected subscriber growth internationally and contractual rate increases domestically.

Studio Entertainment

Studio Entertainment revenues decreased 16% to $1.6 billion and segment operating income increased 10% to $413 million. The revenue decline was driven by fewer Disney branded titles in wide theatrical release in the current quarter along with an adverse impact from the timing of title availabilities in television markets and lower DVD volumes. Higher operating income was primarily due to an increase in worldwide theatrical results and lower film cost write-downs, partially offset by decreases in television distribution and worldwide home entertainment results.

Improved worldwide theatrical results reflected the benefit of lower distribution and marketing costs and production cost amortization which more than offset the revenue decline due to fewer Disney branded films in wide theatrical release. Key titles in the prior-year quarter included Tangled and Tron: Legacy while the current quarter included The Muppets.

Lower results in television distribution were driven by the timing of title availabilities, relative to our fiscal period end, in international markets. The decrease in worldwide home entertainment was primarily due to a decline in unit sales, partially offset by improved net effective pricing driven by a higher Blu-ray sales mix. The decrease in unit sales reflected the strength of Toy Story 3, Beauty and the Beast Platinum Release, A Christmas Carol and Sorcerer’s Apprentice in the prior-year quarter compared to Cars 2, The Lion King Platinum Release, Pirates of the Caribbean: On Stranger Tides and The Help in the current quarter, as well as lower sales of catalog titles.

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