Disney’s profit stalls as ‘Lone Ranger’ costs hurt film unit

August 7, 2013 05:51 AM

Walt Disney Co., the world’s largest entertainment company, said costs to market the box-office disappointment “The Lone Ranger” and shrinking revenue at ABC television network held back third-quarter profit.

Net income was little changed at $1.85 billion, or $1.01 a share, compared with $1.83 billion, or $1.01, a year earlier, Burbank, California-based Disney said yesterday in a statement. Profit came to $1.03 a share excluding items, compared with the $1.01 average of 30 analysts’ estimates compiled by Bloomberg.

Disney expects to record a loss of as much as $190 million this quarter on “The Lone Ranger,” which cost $225 million to make and has produced less in box-office sales. The company’s ESPN, A&E and domestic children’s cable channels, along with the popular theme parks, continue to spur growth for Disney as film profits slide and the ABC broadcast division struggles.

“There has been a lot said I know about the risk of basically high-cost, tentpole films, and we certainly can attest to that given what happened with ‘Lone Ranger,’” Chairman and Chief Executive Officer Robert Iger said on a call with investors. “We still believe that a tentpole strategy is a good strategy. One way to rise above the din and the competition is with a big film, not just a big budget, but a big story, big cast, big marketing behind it.”

Disney fell 4.1% to $64.33 at 9:33 a.m. in New York. The stock had gained 35% this year through yesterday.

“If you strip everything aside, it was maybe a tad light compared to what people were expecting,” Matthew Harrigan, an analyst at Wunderlich Securities in Denver, said of the earnings. He has a hold rating on the stock.

Quarterly Sales

Sales increased 4.4% to $11.6 billion in the period ended June 29, compared with the $11.7 billion average of 27 analysts’ estimates.

Disney’s film studio posted a 36% drop in profit to to $201 million due to pre-release marketing costs of the “The Lone Ranger” and lower revenue from “Iron Man 3” compared to last year’s megahit “The Avengers.”

“The Lone Ranger,” featuring Armie Hammer in the title role and Johnny Depp as his sidekick Tonto, has collected $176 million in worldwide ticket revenue since its July 3 release, according to Box Office Mojo, an industry website. Studios split those receipts with theater owners and incur additional costs marketing their pictures.

Cable, TV

Operating income at Disney’s media networks, the company’s largest group, rose 8.2% to $2.3 billion. Growth in fees from pay-TV services and advertising at networks, including ESPN, countered higher programing costs and lower revenue from the ABC broadcast business. Sales increased 5.3% to $5.35 billion, Disney said.

Costs at the ABC network rose as the broadcast division aired fewer shows made internally and acquired more programming from outside producers, according to the statement. The ABC network lost about 6% of its audience in the TV season that ended in May and saw a 10% drop in the younger viewers that advertisers target, according to Nielsen data.

Investments and an improving economy lifted profit at Disney resorts and theme parks, where earnings increased 9.4% to $689 million on 7% higher attendance and more spending by tourists.

The company said projects such as MyMagic+, a wristband for guests that serves as an admission ticket, room key and credit card, led to higher costs. The Florida parks are benefiting from the new Disney’s Art of Animation resort and the expansion of the Magic Kingdom.

Consumer products profit rose 4.8% to $219 million, while losses at the company’s interactive division increased to $58 million from $42 million a year earlier.

“Given the number of headwinds we faced, we are very pleased with the financial results we delivered,” Chief Financial Officer Jay Rasulo said on the call.


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