Disney announced their quarterly earnings for the first quarter of the 2013 fiscal year (Oct-Dec). When excluding certain one-time expenses, Disney has earnings per share of $.79 compared to the record breaking $.80 the prior year. While this is lower than last year, it beat the street’s expectations by three cents and the stock rallied in after-hours trading.
While it is always exciting, when Disney beats the street, the news that has fans excited is what Bob Iger broke on CNBC just after the earnings were announced. He has confirmed that Disney is going to make stand-alone Star Wars films that take place outside of the “Saga Films” (Episodes VII, VIII, IX). While he won’t confirm the subjects or the number of these films, he did mention that Simon Kinberg (X-Men: First Class) is working on one while Larry Kasdan (The Empire Strikes Back) is working on another.
Bob did give some further details of how Star Wars will be seen now that is has officially become part of the Disney family. A few weeks ago, he went with representatives from all of Disney’s divisions to Lucasfilm to discuss their future plans. It was decided they would focus all of their attention and brand equity into the J.J. Abrams directed Episode VII. This probably played into the decision to delay the 3D rerelease of Episodes II and III.
There was talk of future interactive, consumer products, theme parks experiences, and television. And while all of these avenues are being discussed and developed, the priority remains Episode VII. It is likely that most of these efforts will come to light following the film’s release, which Bob said was on target for a Summer 2015 release. Think of Episode VII as Star Wars’ coming-out party in the same way Avengers was Marvel’s.
On interesting note, was Bob mentioned that Imaginnering was working on Star Wars experiences prior to the acquisition and that they have presented their work to Lucasfilm. Expect to see more Star Wars in the parks, but after J.J. expands the universe.
And on to other things discussed during the earnings announcement,
For Media Networks, 7 out of 10 affiliate agreements have been made with multi-channel providers. 2 of the remaining 3 are the two major satellite provider.
Disney Junior is having great success with Doc McStuffins, Jake and the Neverland Pirates, and Mickey Mouse Clubhouse being the top shows in kids 2-5. The Sofia the First: Once Upon a Princess TV movie was the top Disney Channel broadcast in this demo as well. Bob expects Disney Junior to be a major factor in growth as the channel had a low price for cable providers in order to get in to households. Now that the channel is a success, expect that price to go up. ABC Family also had great success with strong ratings growth.
ESPN continues to be successful, but was hampered by increased sports costs with new deals going in to affect. New affiliate deals will be coming online in 2013 which will offset these increased programming costs when looking at the entire year even if it makes this quarter look a little rough. Currently Disney is looking on how to exit from the loses at ESPN’s U.K. business now that they have lost their Premiere League rights.
Bob tested MyMagic+ last week and thought it was very exciting. He made a point to mention that the initiative is completely optional. The programs will be rolled out over the next several months, but parts of it will rollout over the very long term. He is excited that Guests will be able to plan out their day and have a guarantee that they will be able to experience their favorite attractions. Most of MyMagic+’s capital expense has been spent and now the increased operating costs are coming in to play. It should be noted that MyMagic+ has a much shorter depreciation life than other types of investments such as attractions.
The parks saw higher income in their domestic parks with higher Guest spending at Walt Disney World and Disneyland while there were significant attendance growth at Disneyland. Occupancy was down 4%, but this is due to more rooms being available with the opening of Disney’s Art of Animation Resort. International income was down due to higher costs at Disneyland Paris and starting to spend more money on Shanghai Disneyland, which was partially offset by higher Guest spending at Hong Kong Disneyland.
Disney Interactive was profitable for the first time this quarter. They expect to have losses in the second quarter, but continue to remain hopeful that it will be profitable for the year. The big swing factor is Disney Infinity, which could go either way. Infinity is expected to be an evergreen initiative that will last for several years as it expands with new characters, new worlds, and on new platforms. So far, Disney has been impressed with the reception Infinity has received from gamers but also retailers.
Disney is also seeing great success with their mobile business in Japan, which is the complete opposite of the fate of their domestic Disney Mobile which launched and closed several years ago.
Bob mentioned Wreck-It Ralph as a Studio highlight and that it is nominated, along with Brave and Frankenweenie for the Best Animated Feature Oscar. Home Entertainment had a challenge this quarter due to having to compare the successful releases of Cars 2 and The Lion King, with the less successful Brave and Cinderella.
When asked about the recent deal to move their Pay-TV relationship to Netflix from Starz, Bob mentioned that he was impressed with their platform and their user interface. Th4ey also stepped up and paid the right price, which was important. Bob does not expect this deal to significantly cannibalize cable and satellite subscriptions as they provide different content.
At Consumer Products, Spider-Man and Avengers merchandise made up for lower sales from Cars merchandise. The Disney Stores in the U.S. and Japan also saw growth as the new store concept continues to rollout.
Investors had a lot of questions about the future of Hulu, which Disney is a part-owner. Bob declined to comment as he is neither on Hulu’s board or their spokesperson. Disney did take a $55 million charge related to Hulu’s owners buying out Providence Capital stake in the website.
In the end, this was another successful earnings announcement for The Walt Disney Company. What I love about Disney is that it is able to be a successful business by investing in great content. I cannot wait to watch this company buildup to the big year they should have in 2015. It should be nothing short of “magical”.