BENGALURU: The Walt Disney Company Inc reported 5.1 per cent revenue increase in Q3-2015 (quarter ended 27 June, 2015) to $13,101 million as compared to the $12,466 million in Q3-2014 (quarter ended 28 June, 2014). Net income during the current quarter improved 10.6 per cent to $2483 million from $2245 million reported for the corresponding year ago quarter.
Of the five segments that add to Disney’s numbers, four – Media Networks, Parks & Resorts, Studio Entertainment and Consumer Products showed improvement in revenue and income, while its Interactive segments showed decline in revenues and income in the current quarter as compared to the corresponding year ago quarter.
“We’re very pleased with our performance in the third quarter, with record net income and diluted earnings per share of $1.45, up 13 per cent from the prior year. The strong results across our many diverse lines of business demonstrate the power of our unparalleled brands, franchises and creative content,” said Disney chairman and chief executive officer Robert A Iger.
Segment Results
Media Networks
Media Networks revenues for the current quarter improved 5 percent to US$ 5768 million from US$ 5511 million reported for Q3-2014. Operating Income from this segment increased 4 percent to US$ 2378 million in Q3-2015 from US$ 2296 million in Q3-2014.
Two sub-segments – Cable Networks, and Broadcasting contribute to this segment.
Cable Networks
Cable Networks reported a 5 percent growth in revenue to US$ 4140 million in Q3-2015 from US$ 3942 million in Q3-2014. The sub-segment reported a 7 percent increase in Operating Income to US$ 2078 million in Q3-2015 as compared to the US$ 1942 million in Q3-2014. The company says the increases at the domestic Disney Channels and ABC Family were due to higher program sales and increased affiliate revenue, driven by contractual rate increases. Program sales growth reflected increased subscription video on demand (SVOD) distribution revenues in the current quarter.
Operating results at ESPN were driven by growth in affiliate revenue, partially offset by lower advertising revenue. The increase in affiliate revenues was due to contractual rate increases and an increase in subscribers. The increase in subscribers was due to the new SEC Network launched in August 2014, partially offset by a decline in subscribers at certain of our networks.
Lower advertising revenues reflected lower ratings and rates, partially offset by more units sold driven by NBA playoff games. Lower rates reflected the benefit of World Cup soccer in the prior-year quarter. ESPN programming and production costs were relatively flat in the quarter as the addition of the SEC Network and higher rights costs for NBA programming were essentially offset by the absence of rights costs for NASCAR and World Cup soccer.
Broadcasting
Broadcasting reported 4 percent hike in revenue in the current quarter to US$ 1628 million from US$ 1569 million, but reported a 15 percent decline in operating income to US$ 300 million from US$ 354 million in the corresponding quarter of last year due driven by higher programming costs, lower advertising revenue and higher labour related costs, partially offset by growth in affiliate fees and higher program sales revenue from SVOD distribution. Higher programming costs were driven by increases in the average cost of primetime programming and pilot costs in the current quarter.
Lower advertising revenues reflected decreased news and daytime ratings, partially offset by higher rates. Affiliate fee growth was due to new contractual provisions and contractual rate increases.
Parks and Resorts
Parks and Resorts reported4 percent growth in revenue to US$ 4131 million from US$ 3980 million in the corresponding year ago quarter and a 9 percent increase in Q3-2015 operating income to US$ 922 million from US$ 848 million in Q3-2014. Operating income growth for the quarter was due to an increase at Disney’s domestic operations, partially offset by a decrease at its international operations.
Studio Entertainment
Studio Entertainment reported 13 percent increase in revenue to US 2040 million in Q3-2015 as compared to the US$ 1807 million in Q3-2014, and segment operating income increased 15 percent to US$ 472 million from US$ 411 million in Q3-2014.
Disney says that higher operating income was due to an increase in theatrical distribution, growth at international television distribution and a higher revenue share with the Consumer Products segment. These increases were partially offset by a decrease in home entertainment and higher film cost impairments.
The increase in theatrical distribution reflected the strong performance of Marvel’s Avengers: Age of Ultron in the current quarter compared to Marvel’s Captain America: The Winter Soldier in the prior-year quarter. Theatrical results in the current quarter also benefited from the continuing performance of Cinderella, which was released in the second quarter of the current year. These increases were partially offset by the strong international performance of Frozen in the prior-year quarter and the results of Tomorrowland in the current quarter. The growth in international television distribution included sales of Star Wars titles, while the increased Consumer Products revenue share was primarily due to the performance of Frozen merchandise. The decrease at home entertainment reflected lower unit sales due to the performance of Frozen in the prior-year quarter compared to Big Hero 6 in the current quarter.
Consumer Products
Consumer Products Q3-2015 revenue increased 6 percent to US$ 952 million from US$ 902 million in Q3-2014 and operating income improved 27 percent to US$ 348 million from US$ 273 million in Q3-2014.
Higher operating income was due to an increase in merchandise licensing revenues and lower third-party royalty expense. Merchandise Licensing revenue growth reflected the performance of merchandise based on Frozen, The Avengers and Star Wars, partially offset by lower revenues from Spider-Man merchandise.
Interactive
Revenue from this segment fell 22 percent to US$ 208 million in Q3-2015 from US$ 266 million in Q2-2014, but segment operating income was nil as compared to the US$ 29 million in Q3-2014. The segment just managed to breakeven.
Disney says lower operating income was primarily due to lower results from Disney Infinity and decreased sales of console game catalogue titles, partially offset by the continued success of Tsum Tsum. The decrease from Disney Infinity was due to decreased unit sales and lower average net effective pricing.