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Disney 3Q Profit Up Despite DVD Slowdown

1 Aug, 2007 By: Erik Gruenwedel



The Walt Disney Co. reported a 4% increase in third-quarter (ended June 30) studio entertainment revenue to $1.8 billion despite the lack of a major DVD release.

In a call with investors, Tom Staggs, SVP and CFO of Disney, said worldwide DVD sales in the quarter sagged in comparison to last year when The Chronicles of Narnia: The Lion, the Witch and the Wardrobe sold more than 18 million units.

“[There was] no comparable release in this year's Q3,” Staggs said.

Operating income, which represents profit before taxes and interest payments, in the segment declined 20% to $192 million.

He said strong box office results from Pirates of the Caribbean: At World's End and Disney/Pixar's Ratatouille helped save the quarter, despite high marketing costs associated with the latter's theatrical release at the end of the quarter.

Staggs warned that fourth-quarter results (ended Sept. 30) will be held in comparison to last year's release of Pirates of the Caribbean: Dead Man's Chest, which went on to become the third most successful movie in box office history.

Disney President and CEO Bob Iger said At World's End will be released on DVD in time for Christmas and on next-generation optical media format Blu-ray Disc. He said a special edition release featuring all three “Pirates” titles was forthcoming as well.

Staggs said the company continued to be pleased by the results of its self-published video games, including recent release At World's End.

“We are encouraged by the success thus far in this business,” Staggs said. “But as we continue to ramp up our investment in video games, these efforts will continue to dampen margins for consumer products in the near term.”

The CFO said the just announced acquisition of Canadian-based children's online Web site Club Penguin will significantly increase incremental revenue based on its paid subscriber base of more than 700,000 members and 12 million unique visitors.

“We believe that figure can continue to grow,” he said.

Staggs said Disney paid $350 million up front for Club Penguin with the potential for additional purchase price payments of as much as $350 million through 2009 depending on the growth of the site's earnings.

The site will be re-branded Disney's Club Penguin and incorporated into revamped Disney.com, which the Disney executives said is aggressively pursuing kids and families through online video, games and video-on-demand (VOD).

For the quarter, Disney posted income of $1.17 billion on revenue of more than $9 billion, compared to profit of $1.1 billion and revenue of $8.4 billion last year.

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