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‘Toy Story 3’ Discs Fatten Disney Q1 Profit

8 Feb, 2011 By: Erik Gruenwedel

Toy Story 3

Worldwide disc sales of Toy Story 3 contributed to Walt Disney Studios reporting first-quarter operating income of $375 million, up 54% from operating income of $243 million during the previous-year period.

The studio, which includes Walt Disney Studios Home Entertainment, said it generated $1.93 billion in revenue, which was nearly identical from last year.

Toy Story 3 ended 2010 as the No. 1 box office release (topping $1 billion in global revenue) and, together with Alice in Wonderland ($1 billion), helped Disney record one of its most successful filmed entertainment years in history.

The results should bolster Disney's maverick approach toward distribution. Some analysts criticized the studio for offering Alice and Toy Story 3 to rental kiosks and Netflix, and not to transactional video-on-demand, on street date.

CEO Bob Iger has reiterated that Disney-branded titles typically outperform at sellthrough, and discount rental channels such as kiosks diversify distribution without undermining revenue.

“We had an excellent first quarter,” Iger said during an analyst call. He said the No. 1 animated title in history (Toy Story 3) was key to Disney’s holiday retail success, including consumer goods.

Iger said it is important going forward that Disney offer its content across as many platforms as possible, which he believes will lead to increased competition among third-party distributors and lower-priced access to consumers.

“We want to be in a good place, on a good platform where there is good navigation, descent access to revenue, and our brand and our products”, are in effect showcased well, and it's reliable for the consumer," Iger said. "And when you are on these different platforms, you just appear to be more relevant."

The CEO said the overall home video marketplace continues to soften, which he said Disney has managed to navigate due to the strength of the brand and types of titles released.

“We are managing our libraries very well, so that when we bring certain product out, we create events when we bring them out and defy logic, so to speak, in terms of the marketplace,” Iger said, adding that Toy Story 3 helped increase unit sales for Toy Story and Toy Story 2. He said the special Blu-ray Disc release of Beauty and the Beast last fall was a strategy the studio would continue.

“That has been a winning proposition,” Iger said, adding that several of Disney's directo-to-video releases have outperformed the market in general.

"We're not seeing the kind of erosion on those types titles as we are on the live-action titles," he said.

CFO Jay Rasulo said reduced home entertainment distribution and marketing costs, in addition to lower film write-downs, also contributed to the quarterly results. He wouldn’t quantify the dollar amount the studio saved in home entertainment cost reductions.

Rasulo said second-quarter results would be negatively impacted by tough comps with last year’s Alice, considering the studio has no comparable release planned this quarter. In addition Up was released in numerous foreign home entertainment markets last year in the quarter.

Disney will discuss expanded strategies during a special investor presentation Feb. 17.


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