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Disney Studio Unit Posts Loss

30 Jul, 2009 By: Erik Gruenwedel

Global declines in DVD sellthrough and television distribution contributed to The Walt Disney Co.’s studio entertainment segment reporting a third quarter (ended June 27) operating loss of $12 million compared to profit of $97 million during the previous year period.

The segment’s loss, which includes Walt Disney Studios Home Entertainment, was its first since 2005.

DVD and Blu-ray sales of Bedtime Stories, Confessions of a Shopaholic and Bolt did not compare favorably with physical sales of National Treasure 2: Book of Secrets and Enchanted last year.

“Operating results for the studio were off considerably,” CFO Tom Staggs said in a call with analysts, citing modest increases in physical rentals and video-on-demand transactions.

Strong theatrical results from Disney/Pixar release Up and Hannah Montana: The Movie helped minimize studio entertainment’s revenue decline to $1.3 billion, down 12% from $1.4 billion last year.

The quarter included significant upfront marketing and related costs with the July 24 (fourth quarter) theatrical release of animated G-Force, which has generated more than $45 million box office revenue through July 29.

When asked about the recent deal between rental kiosk operator Redbox and Sony Pictures Home Entertainment, Disney chairman and CEO Bob Iger said Disney dealt with rental kiosks, including Redbox, through a third-party several years ago. He characterized kiosks as a small part of a sellthrough dominated business.
The CEO said the growth of rental and digital distribution at the expense of physical sellthrough was due in part to the economic recession and change in consumer habits.

“People are not looking to build [DVD] libraries as much as they once did,” Iger said.

While characterizing $1 per day kiosks as convenient and value oriented, Iger said Disney would continue to focus on movies consumers prefer to own than rent.

“If you want to watch a Pixar film or you want your kids to watch it 50 times or a Disney film, then owning it is a lot more convenient and more valuable than renting it,” he said.

Iger said he remained concerned by efforts from Time Warner and Comcast to repurpose original content (so-called TV Everywhere) across multiple platforms for free to monthly cable subscribers.

The CEO last week said Disney was developing Web-based sites that would offer original and repurposed content on a subscription basis.

Specifically, Iger said he doesn’t want to put at risk the multi-channel distribution strategies currently in place for Disney content.

“We have certain questions about the viability [of TV Everywhere],” he said. “We don't know whether it works, we don't know how consumer friendly it's going to be.”

While maintaining an open mind regarding distribution of content to consumers, including through third parties, Iger said Disney content has inherent value throughout the distribution channels.

“We should get paid appropriately for that,” he said. “We find it interesting that they are willing to give this away for free. We've got a healthy amount of skepticism about it but we are also open-minded about it.”

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