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'Star Wars' Awakens Disney's Bottom Line

9 Feb, 2016 By: Erik Gruenwedel

'Star Wars: The Force Awakens,' which just topped $2 billion at the global box office, delivers Disney Studios' most-profitable quarter ever

Despite being released just 15 days before the end of the fiscal quarter, Star Wars: The Force Awakens helped Walt Disney Studios post a record $1 billion in first-quarter (ended Jan. 2) operating income, up 86% from operating income of $537.6 million during the previous-year period. Revenue increased 46% to $2.7 billion from $1.8 billion. It was the studio’s most-profitable quarter ever.

Disney Studios, which includes Walt Disney Studios Home Entertainment, said operating income was positively impacted by residual revenue from the April 10, 2015, retail release of Star Wars: The Digital Movie Collection, a collaboration between Disney, Lucasfilm and 20th Century Fox Studios.

The $89.99 bundle, which includes nine hours of bonus material, featured previously-released "Star Wars" movies The Phantom Menace, Attack of the Clones, Revenge of the Sith, A New Hope, The Empire Strikes Back and Return of the Jedi.

The titles are available individually on Disney Movies Anywhere, Amazon Video and Vudu, among others, in addition to packaged media.

“It’s been absolutely thrilling to see the reaction to our first 'Star Wars' feature film,” CEO Bob Iger said on the company's fiscal call, adding that it is the only film to ever reach $900 million at the domestic box office.

Iger said production on Rogue One: A Star Wars Story, the first film in the Star Wars Anthology Series, is nearly completed and set to hit theaters Dec. 16.

ESPN False Alarm

Iger sought to circumvent speculation that sports network ESPN remains challenged in the era of cord-cutting. The executive said that on the contrary there has been an uptick in ESPN subscriber growth over the past few months, a trend he called “encouraging.”

Iger said ESPN’s inclusion on skinny pay-TV channel bundles delivered via broadband — notably Dish Network’s Sling TV — remains positive, especially to younger consumers. Sling was the first over-the-top video service to offer ESPN, which had seen a loss of 7 million households over the past two years. That Nielsen-driven figure has been reduced by 2 million following data recalibration, according to Iger.

The executive said the erroneous Nielsen data prompted him last summer to issue warnings about ESPN’s sub growth, which ignited a Wall Street firestorm around the sports network. After Nielsen included ESPN’s inclusion in skinny bundles, including Charter’s Spectrum TV Plus, there sub losses didn’t look as dire. 

“Four-out-of-five adults in this country connect with ESPN on some platform [i.e. pay-TV and online] every month,” Iger said, adding that brands such as Marvel, Disney and ESPN are “tailor-made” for direct-to-consumer video products.

“We actually feel good about [pay-TV]. So, expect innovation and continued pursuit of new distribution opportunities.”

Bullish on Hulu

Iger said Disney remains upbeat as a co-owner of Hulu with 21st Century Fox and Comcast because of the subscription streaming service’s market position.

“We like new platforms. We like their appeal to young people, particularly millennials. The user interface and mobility of these platforms is clearly attractive,” Iger said.

The executive said Disney would continue to invest in Hulu, adding that it fits “very well” into Disney’s strategy of investing in new technology platforms and support of new distribution opportunities.

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