Walt Disney’s fiscal third quarter was its best ever—earnings per share grew 31 percent to $1.01,beating Wall Street expectationsby 8 cents. We sat down with CEO Bob Iger to talk about what drives the upside.
Bottom line: People are still willing to spend for quality, Iger said, as people are flocking to Disney parks and spending more money there. The advertising business is looking better, though there’s not much visibility. And "The Avengers," which has grossed nearly $1.5 billion worldwide, drove massive growth at the studio division.
Disney’s revenue increased 4 percent to $11.2 billion, not the 6-percent increase Wall Street expected. But Iger said that shortfall was partly due to a change in the way the ESPN affiliate fee revenue was recognized, which shifted $140 million out of the quarter. Disney does not provide guidance.
Iger said that economic weakness in Europe is impacting business, with modest declines in visits to its parks, the business segment most susceptible to economic volatility. But Asia has been delivering strong results and in the US, the strength of Disney’s brands seems to be outweighing economic weakness. Iger saying they see consumers “willing to step up and pay for products they believe in.” The key is that the company has to continue to invest—in attractions like the new Cars Land.
Disney has been increasing pricing at the parks and Iger said there’s still “room to increase pricing” further. He “views the environment with some degree of caution” but said he’s confident that the company will continue to have “price elasticity.” And despite higher prices, consumers are booking more rooms both at the theme parks and on the cruise ships, where occupancy is 94 percent.
His outlook is also upbeat for the company’s biggest division, the media networks. He sees a “relatively strong environment for raising subscription fees for the channels we have.” Though he’s bullish about advertising across the cable networks—Disney Channel and ESPN in particular—and more cautious about ABC. Noting that ABC had some “ratings issues,” he called ABC’s Upfront ad sales period “relatively decent.” ABC sold about 80 percent of its ad inventory and continued to sell ads even after the typical Upfront sales period ended, he said.
Iger also discussed a future revenue stream—advertising embedded into its new iPad apps—which the company hopes to roll out this fall. He described the rollout of apps that give Comcast subscribers access to live and on-demand content as a success, saying that they’re in negotiations with other cable and satellite TV companies to include access to such apps. The new ad format, which Disney would embed into those apps, would be an additional, incremental revenue.
Facebook was a hot topic in the earnings call, as was Disney’s investment in social gaming on the heels of Zynga’s disappointing results. Iger said that, even though the company’s investment in social gaming has been “modest,” it still sees growth in the space, pointing to Facebook’s new App Center as a key new way to draw in new customers.
Iger also weighed in on the potential of its deal with YouTube , calling it “much more” than just a branding tool, saying there’s an opportunity to increase consumption and, in turn, revenue. Disney’s Interactive division continues to lose money, but at about half the rate it did a year ago.
BOTTOM: -By CNBC's Julia Boorstin
-By CNBC's Julia Boorstin
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