Disney Earning Slip Despite TV Gains

Revenue up 12% in cable, 4% in broadcast
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Updated at 1:27 a.m. ET
Despite growth in its TV businesses, The Walt Disney Co. reported lower earnings for the second quarter ended April 2.

Net income dropped 1% to $942 million, or 49 cents a share, from $953 million a year ago, the company said after the market close on Tuesday, partly because this year's movie slate didn't measure up to a year ago. Revenues rose 6% to $9.1 billion.

"We are pleased with the underlying quality of our second quarter earnings," Robert A. Iger, president and CEO, said in a statement. "There is great creative momentum throughout the company which gives us continued confidence in our ability to grow our businesses."

During Disney's earnings conference call with analysts Tuesday Iger said, "All signs are that next week's upfront will be a strong one."

CFO Jay Rasulo said ABC's ad prices in the scatter market were up 41% in the second quarter. So far in the third quarter, scatter prices are up 35%.

Iger was enthusiastic about new programming coming to ABC. "This crop of pilots represents the work of a new management team, and we're hopeful these new shows will firmly anchor our primetime schedule in the years ahead," he said. "I'm hopeful that ABC Studios is going to contribute not only to ABC's success in terms of its prime network schedule, but to its future bottom line because of the ownership of [intellectual property]. There are some really strong shows from the studio."

Asked about the impact on ESPN of games being missed because of lockouts by the NFL and NBA, Iger said the impact on Disney's bottom line would be negligible. He said ESPN believes that if some or all of the NFL schedule isn't played, "there will be a mad dash for male demos and other sports, notably college football, where ESPN has almost 300 games across its multiple platforms, including ABC." He added that in that situation, ESPN would have the ability to raise rates and increase the amount of ads it airs in games.

Iger also said ESPN would be looking at bidding seriously on the rights to the Olympics. In response to an analyst who thought ESPN has pushed carriage fees as high as they can go, Iger said, "I think it would be wrong to assume that the purchase of an Olympics should only be looked at as a generator of incremental advertising revenue," he said. But he added, "ESPN has also demonstrated a great ability to walk away from opportunities that they didn't believe made sense from a bottom-line perspective."

Several Disney TV units are also looking to take advantage of the company's acquisition of Marvel. A Marvel television block is being created for Disney XD, Iger said. "There's also development activity at ABC Family and ABC."

Disney's earnings were hurt by several factors, led by the poor performance of the film Mars Needs Moms. There were also losses of $23 million because Easter fell in the third quarter this year instead of the second; $25 million from the impact of the Japanese earthquake on Disney's theme parks and consumer businesses; and $34 million in charges relating to the purchase of online game company Playdom.

Operating income at Disney's media networks, including ESPN and ABC, rose 17% to $1.5 billion; revenues rose 12% to $4.3 billion. At the cable networks, operating income rose 15% to $1.357 billion as revenues rose 17% to $2.8 billion. At its broadcasting operations, operating income rose 36% to $167 million as revenues rose 4% to $1.5 billion.

The company said growth at ESPN, ABC Family and the Disney channels boosted operating income. ESPN had higher advertising revenue and higher programming costs due to the addition of college football Bowl Championship Series games. ESPN's ad revenue was up 43%, and 23% if the BSC games are taken out of the equation.

Advertising revenue was up at the ABC Television Network in primetime and news, but was off in sports because BCS games moved to cable. Revenues from the sale of ABC produced shows were higher as well. Ad sales were up 6% at ABC's TV stations.

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