Disney Looks Past Scrapped Films to Brighter Future With Fox
(Bloomberg) -- Walt Disney Co. Chief Executive Officer Robert Iger gave an upbeat view of his plans for new video streaming services and the takeover of 21st Century Fox Inc., even as earnings missed estimates due to film write-offs.
ESPN+, the $5-a-month online sports service launched in April, is attracting more subscribers than forecast, Iger said Tuesday on a conference call with investors. He also said Disney has big plans for Fox assets, including offering ecologically themed tours tied to that company’s National Geographic business.
“We’ve always believed we have the brands and content to be extremely competitive and to thrive alongside Netflix, Amazon and anyone else in the market,” Iger said.
Disney is in the process of acquiring Fox’s entertainment assets in a $71 billion deal -- seeking movie and TV properties that it can turn into megahits like its Marvel, Star Wars and Pixar films.
Fox is in a separate bidding war with Comcast Corp. for European broadcaster Sky Plc, which would be absorbed by Disney following the megamerger. Fox on Tuesday made it easier to win that fight, switching the conditions of shareholder acceptance for its bid. That means Fox can use its existing 39 percent holding in the British company to get to an approval threshold of as little as 50 percent of Sky shareholders, from 75 percent previously. But first, Fox would have to top Comcast’s offer for Sky, which is currently the highest at 14.75 pounds a share.
Disney shares slipped as much as 1.3 percent in early New York trading Wednesday. Sky rose 0.7 percent to 15.31 pounds in London.
Disney has launched the ESPN streaming service and plans a second, Netflix-style offering for late 2019 that will be built around films and TV. Iger also vowed to increase budgets for Fox’s FX cable channel, the Oscar-winning Fox Searchlight film operation and for National Geographic. He said they’ll all have big roles in the company’s streaming services.
Iger said the loss of cable subscribers has eased since ESPN began appearing in new low-cost TV packages. His upbeat view of the future of the business overcame investor concerns about softness in the TV and film divisions, according to Vasily Karasyov, an analyst with Cannonball Research LLC in New York.
After an initial decline, shares of Disney rebounded in extended trading.
“Once they said ESPN subs continued to improve, the stock popped back up,” Karasyov said. “It tells you what people care about.”
A new “Avengers” film and “Incredibles 2,” both summer releases, were among the industry’s biggest hits ever. However, Disney took a $100 million write-off on two unidentified animated projects that it abandoned, resulting in third-quarter earnings that missed analysts’ estimates.
Disney leads the domestic box office this year -- with 35 percent of the market -- and stands to expand that edge with the Fox purchase. But it has also had misfires. In June, the company closed its Disneytoon Studios, its low-budget animation division, leading to job losses.
Profit at the film division rose to $708 million on the strength of the Burbank, California-based company’s big summer releases. “Avengers: Infinity War” has taken in more than $2 billion worldwide to become the fourth highest-grossing film in history, while “Incredibles 2” topped $1 billion in ticket sales globally and ranks as the biggest U.S. animated feature.
In response to a question, Iger acknowledged that Disney won’t have all of its library available for new streaming services. Some Star Wars content, for example, is contracted to Netflix Inc. and AT&T Inc.’s Turner division.
“If they’re looking for Star Wars movies that launched in 2019 or original Star Wars series you will find that here,” he said. “And as rights become available, or as we’re able to negotiate for rights to bring back you’ll see them on the service and so on and so on.”
Profit at Disney’s biggest division -- TV operations that include ABC, ESPN and the Disney Channel -- fell 1 percent to $1.82 billion, the result of costs associated with the new sports streaming service.
While ESPN recorded higher profit, revenue was hurt by continued subscriber losses. Sales and earnings at ABC rose as the network boosted sales of programming to others.
Operating income at the parks division rose 15 percent to $1.34 billion. The unit, the largest theme-park operator in the world, has been a star performer in recent years, driven by new attractions and higher ticket prices. Domestic and international resorts, along with the cruises, contributed the improved results.
Profit from the consumer products unit, a laggard recently, fell to $324 million. The business, which makes money from Disney merchandise, has suffered from lower licensing and store sales.
Excluding some items, earnings rose to $1.87 a share in the quarter, which ended June 30. That missed analysts’ estimates of $1.94. Revenue grew 7 percent to $15.2 billion, compared with the $15.4 billion projected by analysts.
Even as Fox prepares to sell most of its business to Disney, it’s bidding in a separate deal for Sky. On Tuesday, the company filed paperwork with regulators in the U.K. formalizing that offer for the 61 percent of Sky it doesn’t already own.
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