An Unhappy Mickey Mouse Kicks Off Media Earnings

Disney was hit hard by the economy in its fiscal first quarter, shares falling about ten percent in after-hours trading.

Wall Street is watching closely to see how the bellwether fares, and for any insight into the entertainment industry and consumer spending. Excluding one-time items the company reported earnings of 41 cents per share, down from a 63 percent profit in the year ago quarter on $9.6 billion in revenue. And while the company usually surprises to the upside, this time analysts were sorely disappointed, the consensus expectation was 51 cents per share on $10.1 billion in earnings.

All eyes were on the theme parks division, which is most susceptible to recession: operating income for the segment fell 24 percent on a four percent drop in revenue. I spoke exclusively with CEO Bob Iger who pointed out that demand for the theme parks are still there, as attendance is fairly strong and bookings for the current quarter and next quarter are running slightly ahead of last year. But this year the company is relying on a "buy four get three free" deal, so margins are falling.

The company's filmed entertainment division suffered from tough comps and a weaker-than-usual quarter. Revenue fell 26 percent and operating income was down 64 percent, largely on disappointing DVD sales compared to last year's hits "Pirates of the Caribbean: At World's End" and "High School Musical 2."

The economy may not have affected the movie division's theatrical division, but it did take its toll on its television ad business, ABC's ad sales dropping over the past quarter. Trying to manage costs the Disney-ABC television group eliminated 400 jobs last week.

Disney faces a tough combination of these cyclical issues, plus the fact that the media industry is changing. For example, Iger mentioned that Disney is carefully monitoring whether the DVD industry is in decline and is trying to tweak its business to keep people buying. For example, Iger noted that consumers are buying fewer library titles and are more interested in new DVDs and packaged sets. Now we'll see if Iger's theory that Disney can be more recession-resistant because it's a family brand holds.

Now all eyes on Time Warner, which reports before the bell Wednesday. It has already announced that it expects to take a $25 billion write down on its cable, publishing and AOL assets. So when the company reports, the real focus will be on what CEO Jeff Bewkes plans to do about the continuing ad slowdown at AOL and the magazine division, and strategy for the company after the spinoff of Time Warner Cable is complete.

Questions? Comments?