Disney Q1: No Recession Here

Yet another media conglomerate who says they didn’t see a recession last quarter and aren’t seeing one now. Yesterday News Corp. reported smooth sailing, and today Disney says the same thing.

Disney doesn’t have any newspaper holdings, so that helps, but it does have a huge parks/resorts business, which should definitely feel a slow down, since it’s hard to fly the family to Orlando for a week if you’re scraping to pay the bills. But Disney says that contrary to a Citi report last month, rooms at the parks sold well last quarter look to be running ahead of last year’s pace for the rest of 08. Meanwhile ad spending is still strong, even as ratings drop.

Summary and partial earnings transcript below:

Revenue: $10.45 billion,  beating consensus of $10.04 billion
Operating Income: $2.25 billion, up 15%
EPS: 63 cents, beating 52 cent consensus

From the release:

  Quarter Ended  

Dec. 29, 2007

  Dec. 30, 2006

Change Revenues(1)(2):

Media Networks
$ 4,169

$ 3,786

% Parks and Resorts



% Studio Entertainment



% Consumer Products

$ 10,452  
$ 9,581  
% Segment operating income(1)(2):

Media Networks
$ 908

$ 708

% Parks and Resorts



% Studio Entertainment



(15 ) % Consumer Products

$ 2,249  
$ 1,950  
Media Networks

Dec. 29, 2007

    Dec. 30, 2006

Change Revenues

Cable Networks $ 2,412

$ 2,136
% Broadcasting   1,757

$ 4,169

$ 3,786

  Segment operating income

Cable Networks $ 586

$ 461
% Broadcasting   322

$ 908

$ 708

Earnings Call:
CEO Bob Iger: Strike has had “no impact” on the quarter.

Rah-rah pep talk on “Disney Difference”. We really, really, really like Hannah Montana. Cross-business initiatives, growing value, etc. But can’t begrudge them a little bow after a nice quarter.

CFO Tom Staggs
: More or less reading from press release. Again, little sign of recession. Ad sales at stations, networks still booming. Parks, resorts still growing. Room reservations for Q2 through Q4 slightly ahead of last year. Don’t want to predict economy, but strong growth in parks/resorts so far (just like we said last month).

Movie business: DVD unit sales down 9% from last year, but we’re blaming that on tough comps, not a systemic industry problem.

Why are film costs up when revenues are flat? Because more of our money came from theatrical, which is lower-margin (we didn’t have many big blockbuster DVDs, which are much higher margin).

Talk about franchises: How long do they last, and what’s coming down the pipeline? Iger: Kind of endless, really. Still selling a lot of Mickey, Goofy. But as we create high-quality franchise, we try to see whether its “leveragable” across multiple platforms, etc. Most excited about recently: High School Musical (duh), Hannah Montana (duh)…Cars has biggest potential over longest period of time. Selling more Cars merch now than we did when movie came out. Launching virtual online world for Cars, and we’ll have a sequel to movie (but no timeline). Is Ratatouille a franchise? No. [But it is an excellent movie].

Which businesses have best room for margin, revenue improvement? Cable? Broadcast margins can’t grow much more. “I don’t think there’s significant room ahead.” Though it would help if we can produce more stuff ourselves. Parks/resorts have plenty of room left for margin expansion.

Do you think you might cut back on pilot production, a la NBC? It’s safe to assume that given the fact that we’ve had a work stoppage…it is guaranteed that we will make far fewer pilots this year than we have in the past. But we’re going to have revenue loss as well, so not much margin improvement there. Heartened by strength of scatter marketplace and advertising in general. Planning an “attack on costs” in broadcast business over next few years.

Are cable networks more insulated from economic slowdown? Would broadcast dollars head from broadcast to cable in a recession? Disney channel doesn’t take advertising, so fine there. And ESPN has super high sub fees, and ads still selling well there. Live sports driving revenue rates. And in general, we’re ok if there is a recession: Only about 20% of our revenue comes from advertising: “When you think about this company, and you think about recession, the impact from advertising is not all that significant.”

OK, but what about hotel business in a recession? We have value-based pricing. Family of four can go to park for a week for $1,600. Strong response to that.

M&A: Steamboat Ventures (DIS venture arm) doing well for us. Meant to help us keep ear to the ground, but also like to get a return. Quigo (AOL acquisition) was a $37 million gain for us.

video games: People sceptical about our interest, but working well for us. Younger kids playing games (Wii, Nintendo DS), and so that’s great for us. And music doing well in video games, so that’s also encouraging for us, given High School Musical, Hannah Montana, etc. Spent about $130 million on games development last year, will ramp up this year to $180 million to $200 million.

TV: Pipeline still strong. Ratings are coming down as we run out of new programming (everyone else has same boat). But that reduces supply, hence rising scatter prices. We’re not worried about makegood problem like NBC had last year.

Ad sales growth at ESPN? Low double-digit growth, excluding gains from NASCAR.

If strike ends this week, what does that mean for upfronts? Proceed as normal or push back? Iger: Advertisers will want us to sell upfront time as usual, at the usual time, and we’ll participate “aggressively” in that. But as far as the parties… It’s going to be our TV guys’ call, but: “I think the manner that the upfront is presented, with the bells and whistles on stage, and a fair amount of hors d’oeuvres,  feels like a bit of an anachronism to me.”
See Also: Citi: Recession Hurting Disney

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