‘Alice’ Disc Helps Puts Disney in Financial ‘Wonderland’

Alice in Wonderland

Strong box office receipts from Toy Story 3 and Iron Man 2, coupled with DVD/Blu-ray Disc and electronic distribution of Alice in Wonderland, contributed to The Walt Disney Co.’s studio-entertainment division reporting a jump in revenue for the third-quarter (ended July 3).

Studio entertainment revenue, which includes Walt Disney Studios Home Entertainment, increased 30% to $1.6 billion from $1.2 billion during the same period a year ago. Operating income increased to $123 million, compared with an operating loss of $12 million during the same period a year ago.

The prior-year quarter included Up, Hannah Montana: The Movie and The Proposal.

The higher operating income was primarily due to the strong worldwide performance of the key titles in theatrical markets and improvements in domestic home entertainment and worldwide television distribution.

Indeed, lowered home entertainment marketing costs combined with strong physical and digital results from Alice trumped home entertainment results from Bedtime Stories, Bolt and Confessions of a Shopaholic last year.

CEO Bob Iger said in a call with investors that the home entertainment business continues to grapple with ongoing competition for consumers’ free time. Iger said the DVD market remains challenging, driven on an individual title-by-title basis.

“[DVD] collectability doesn’t seem to be as important like it once was … except for real franchises and brands like Pixar,” Iger said, adding that reality has guided the studio’s approach to theatrical releases, including focusing on key franchise films and the number of titles released.

The CEO said the studio is aggressively pursuing altered windows of distribution for movies, including releasing titles in advance of packaged media and digital at premium VOD pricing.

“There are people, we believe, who like to see movies sooner rather than later and would pay a premium price to do that,” Iger said, declining to elaborate on particular release dates and pricing.

Iger said Disney continues to monitor growth opportunities in digital distribution, including micro-payments, subscriptions (Hulu), advertising and various forms of pay-per-view.

“We feel for us not only to be relevant, but grow our business, we have to be in this space,” he said. “We like the trends and we like being there first.”

Indeed, Iger said that when renewing its third-party movie distribution agreement with Starz it agreed to the cable provider licensing streaming content to Netflix.

“We could actually benefit through Netflix growth through that deal,” he said, adding that by Netflix reaching certain revenue “thresholds,” Disney generates additional incremental revenue.

Separately, the CEO said Disney would continue producing movie-branded consoled-based video games despite the recent $763 million purchase of social gaming network Playdom.

“We’ve concluded that the game strategy has to reflect … how consumers are playing games,” Iger said, adding that Disney would also increase involvement in mobile devices and related apps.

The CEO said 40% of Facebook’s 500 million members play online video games across multiple genres and user demographics.

“It became pretty clear to us that social networks and games are here to stay,” Iger said.