Walt Disney Studios Q1 Operating Income Plummets 63%

Mary Poppins and The Nutcracker proved no match for Marvel superheroes and “Star Wars” as The Walt Disney Co. said first-quarter (ended Dec. 29, 2018) operating income at Walt Disney Studios dropped 63% to $309 million from operating income of $825 million during the previous-year period. Studio revenue fell 27% to $1.8 billion from $2.5 billion a year earlier.

The studio on Feb. 5 said lower operating income was due to a decrease in theatrical distribution results, partially offset by growth in TV/SVOD distribution.

Specifically, Disney’s previous-year results from Star Wars: The Last Jedi, Coco and Thor: Ragnarok dwarfed Mary Poppins Returns and The Nutcracker and the Four Realms in the current year. Box office hit Ralph Breaks the Internet was released in the current second quarter.

CFO Christine McCarthy warned theatrical and home entertainment operating revenue would come up short in the current second quarter in the range of $450 million to $500 million compared to the previous-year period — which was the best Q2 ever for the studio.

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Growth in TV/SVOD distribution was due to the performance of Incredibles 2 and Avengers: Infinity War in the current quarter compared with Cars 3 and Guardians of the Galaxy Vol. 2 in the prior-year period.

Overall, the Walt Disney Co. reported earnings per share of $1.84, down 3% from the previous year, when the company posted EPS of $1.89. Total revenue came in at $15.3 billion, about the same as last year.

The down financials nevertheless beat Wall Street expectations. Analysts were anticipating EPS of $1.55 and revenue of $15.18 billion.

Higher revenue from broadcast and parks — run by former Disney home entertainment chief Bob Chapek — offset the declines at Walt Disney Studios.

 

Disney to Demonstrate DTC Service Disney+ April 11

The Walt Disney Co. will demonstrate its pending direct-to-consumer streaming service Disney+ and offer a first look at some of the original content being created by the company’s TV and film studios exclusively for the service at an investor day presentation April 11, the company announced.

Also, effective for the first quarter of fiscal 2019, the company will begin reporting segment operating results for four segments: media networks; studio entertainment; parks, experiences and consumer products; and direct-to-consumer and international (DTCI), the company reported Jan. 18 in a filing with the SEC. In the Form 8-K, the company also recast financial results for the past three fiscal years to reflect the reorganization of Disney’s business segments. In the fiscal year ended Sept. 29, 2018, recast numbers show the DTCI segment with a loss of $738 million.

“Our top priority is fully leveraging our global brands and great content to create world-class direct-to-consumer entertainment,” said Disney chairman and CEO Robert A. Iger in a statement. “We have the structure and management in place to drive growth in our DTC business, and our acquisition of 21st Century Fox further enhances our ability to deliver significant value to consumers and shareholders.”

“Acquiring BAMTech enabled us to enter the DTC space quickly and effectively, as demonstrated by the success of ESPN+,” Iger said in a statement. “The service surpassed 1 million subscribers in its first five months and continues to grow as it expands its content mix, all of which bodes well for our upcoming launch of Disney+. The ability to connect directly with millions of Disney, Pixar, Marvel, and Star Wars fans creates tremendous opportunities for growth. In addition to leveraging our existing IP in new ways, we’re making significant investments in original content exclusively for Disney+, creating an impressive pipeline of high-quality movies and series we believe will make the streaming service even more compelling for consumers.”

The slate of Disney+ content currently in production includes the first-ever live-action Star Wars series “The Mandalorian”; an original series based on Disney Channel’s “High School Musical”; an animated series based on Pixar’s “Monsters, Inc.” franchise; a new season of the “Star Wars” animated series “Clone Wars”; a live-action version of the animated classic Lady and the Tramp; and original docu-series. A live-action Marvel series starring Tom Hiddleston and a second “Star Wars” series starring Diego Luna are also in development, the company announced.

Marvel’s ‘Avengers: Infinity War’ Home Video Sales Spur Q4 Disney Studio Results

Home entertainment sales of Marvel’s Avengers: Infinity War (physical and digital) helped increase Walt Disney Studios’ fourth-quarter (ended Sept. 30) operating income 64.5% ($378 million) to $596 million from $218 million during the previous-year period. Revenue increased 50% to $2.15 billion from $1.43 billion last year.

Infinity War has sold $90.5 million via 2.7 million combined DVD/Blu-ray Disc units since its Aug. 14 retail debut, according to The-Numbers.com. The title is the sixth best-selling title of the year – but only the fifth best Disney title!

Other significant home entertainment titles included Solo: A Star Wars Story, released Sept. 25, while the prior-year quarter included Beauty and the Beast.

For the year, Black Panther, Stars Wars: The Last Jedi, Coco and Thor: Ragnarok rank among the top-five home entertainment releases in 2018.

“We’re very pleased with our financial performance in fiscal 2018, delivering record revenue, net income and earnings per share,” CEO Bob Igersaid in a statement. “We remain focused on the successful completion and integration of our 21st Century Fox acquisition and the further development of our direct-to-consumer business, including the highly anticipated launch of our Disney-branded streaming service late next year.”

Separately, Iger revealed the pending direct-to-consumer streaming service will be called Disney +, featuring original content from Marvel, Pixar and Lucasfilm.

 

 

Hulu Revamps Management, Company Structure

Looking to shake up its internal management structure, Hulu has hired a new chief technology officer, its first chief data officer and realigned the subscription streaming video platform into four operating segments, among other changes.

Notable in the reorganization is the departure of chief content officer Joe Stillerman and Tim Connolly, SVP of partnerships and distribution. Stillerman had been with Hulu for just a year after joining the company from AMC Networks. Also leaving is Ben Smith, SVP, experience, who is retiring in July.

Hulu is conducting a search for a head of the new content partnerships group and is eliminating the CCO position.

“Ben, Tim and Joel have all played a significant role in getting Hulu to the strong position it is in today. They will forever be a part of Hulu’s success story, and we wish them the very best in their next endeavors,” CEO Randy Freer said in a statement.

The company’s original programming and relationships with creators, producers and studios will now operate as a dedicated business function led by SVP of content, Craig Erwich, who reports to Freer at the company’s Santa Monica, Calif.-based headquarters.

Other business segments include technology & product, “subscriber journey,” advertising, data & analytics. All of Hulu’s shared services functions — finance, legal, corporate communications and talent & organization — will continue operating as usual, reporting directly to Freer.

Hulu hired Jaya Kolhatkar, former SVP, global data and analytics platform for Walmart, as chief data officer. Kolhatkar, who begins July 2, will be responsible for elevating Hulu’s customer intelligence, implementing data governance and pushing the SVOD’s decision making based on data.

Dan Phillips, former COO at TiVo, becomes Hulu’s chief technology officer, responsible for aligning the company’s technical and product strategy. Philipps begins today (June 4).

Chief marketing officer Kelly Campbell assumes responsibility for “subscriber journey,” which includes acquisition, engagement and retention, to viewer experience and research, across all of Hulu’s business operations. In addition, this group will now oversee Hulu’s subscriber partnerships, including its relationships with Spotify and Sprint.

The advertising sales group continues to report to Peter Naylor, SVP of ad sales.

Hulu, which last month topped 20 million subscribers, continues to spend big attempting to bridge the gap with Netflix and Amazon Prime Video.

It lost $920 million in 2017 compared to a loss of $531 million in 2016. The fiscal loss is reportedly projected to reach $1.7 billion this year as original content (“The Handmaid’s Tale,” Marvel’s “Runaways,” “Future Man,” and “The Doozers”) spending skyrockets.

The losses are primarily driven by continued investments in programming and marketing by Hulu’s four corporate parents 21st Century Fox, The Walt Disney Co., Comcast and Time Warner.

Disney Has Lofty Plans for Hulu, Despite SVOD’s Mounting Fiscal Losses

The Walt Disney Co. plans to “fuel” Hulu with original programming from its core brands should its $52.4 billion acquisition of 20th Century Fox be completed, Disney CEO Bob Iger told analysts.

Speaking May 8 on the fiscal call, Iger said the Fox acquisition would give Disney 60% ownership of Hulu (and Hulu Live online TV service) with co-owners Comcast and Time Warner owning 30% and 10%, respectively.

Comcast is reportedly finalizing plans to outbid Disney for Fox, which, if successful, would give the cable giant control of Hulu.

“It is our intention to continue to fuel Hulu with more original programming,” Iger said. “And much of that original programming will come from the assets of both Disney and Fox. Think FX as one example, Fox Searchlight is another.”

Iger said Disney’s plan to rollout a branded SVOD service in 2019 could include other Fox assets such as National Geographic, but would be largely anchored by Disney, Marvel, Pixar and Star Wars content.

“When we announced [our direct-to-consumer initiatives] a year ago, we were not talking about Hulu,” he said. “And again, neither is dependent upon, but stands to benefit from the Fox acquisition.”

Disney’s growing obsession with OTT video and Hulu comes as it watches Netflix and Amazon Prime Video grab global market share, increasingly featuring original content.

“When we were considering the best way to integrate the Fox assets, we asked ourselves how best to organize the company,” Iger said. “And one of the things that we looked at was how some of the new entrants in the marketplace are organized. And you typically find – Netflix is a good example.”

At the same time, as Hulu ups its content profile and subscriber base (20 million), costs escalate.

Disney has guaranteed $113 million of Hulu’s $338 million term loan, which expires in August 2022. Disney is also committed to infusing $450 million in capital contribution to Hulu in 2018, according to a regulatory filing. Through March 31, Disney’s capital contributions totaled $114 million against this commitment.

Hulu lost $920 million in 2017 compared to a loss of $531 million in 2016. The fiscal loss is reportedly projected to reach $1.7 billion this year as original content (“The Handmaid’s Tale,” “Marvel’s Runaways,” “Future Man,” and “The Doozers”) spending skyrockets.

“The higher losses at Hulu were primarily driven by continued investments in programming and marketing, partially offset by higher subscription and advertising revenue,” said CFO Christine McCarthy.

 

Sky Posts Strong Q3 Fiscal Results

British satellite TV operator Sky – coveted by 21st Century Fox, Disney and maybe Comcast – April 19 reported a 5% increase in third-quarter (ended March 31) revenue to £10.1 billion ($14.2 billion) from £9.6 billion during the previous-year period. Operating income increased 22% to £857 million from £702 million last year.

“It’s been a good quarter for Sky,” CEO Jeremy Darroch, said in a statement.

The pay-TV operator added 70,000 new video subscribers in the U.K. and Ireland, ending the period with 13 million. The service also inked new partnerships with Netflix and music streaming service Spotify for its Sky Q over-the-top video platform.

Sky has another 5.2 million and 4.8 million video subscribers in Germany/Austria and Italy, respectively.

“Against the back drop of a challenging consumer environment, this performance reflects the continual improvement in our broad set of products and services,” Darroch said.

The executive reiterated that Fox’s offer for outstanding ownership of Sky is currently being reviewed by the Competition and Markets Authority. The CMA is due to send its final report to the Secretary of State by May 1, who is expected to give his decision no later than June 13.

In assuage British regulators, Fox has suggested “ringfencing” Sky News from outside corporate (read Fox owner Rupert Murdoch) influence, and/or divesting Sky ownership to Disney.

Disney has a separate offer on the table for select Fox assets, including 20th Century Fox Studios and Sky. Murdoch is keeping Fox News and Fox Sports in the U.S., among other provisions.

In February, Comcast made public its interest in offering an offer for Sky that significantly exceeds Fox’s. The cable giant has yet to act on that.

“Since no firm offer has yet been made by Comcast or any other third party, Sky shareholders have been advised to take no action,” Darroch said.

Hearing on Redbox Motion to Dismiss Disney Lawsuit Postponed

A hearing scheduled for March 5 on a motion by Redbox to dismiss a lawsuit brought against the video rental kiosk operator by the Walt Disney Co. has been postponed for a week, a Redbox spokesperson said.

Disney last November filed suit against Redbox, seeking to prohibit Redbox from selling movie download codes to titles such as like Rogue One: A Star Wars Story and Moana at a discount to what digital copies sell for on Amazon or iTunes.

Disney had argued that the sale of download codes violates copyright law. Disney includes a warning on combo packs that “codes are not for sale or transfer” – a warning underscored in the terms of use, which say the “sale, distribution, purchase, or transfer of digital copy codes … is strictly prohibited.”

On Feb. 20, a federal court in Los Angeles rejected Disney’s motion for a preliminary injunction to stop selling the codes.

The judge ruled that the warning does not constitute a contract restricting what a consumer can do with product purchased at retail.

In a critical finding, Judge Dean Pregerson ruled that “this improper leveraging of Disney’s copyright in the digital content to restrict secondary transfers of physical copies directly implicates and conflicts with public policy enshrined in the Copyright Act, and constitutes copyright misuse.”

The preliminary injunction was granted because the court agreed with Redbox’s contention that Disney was unlikely to prevail on its case.  According to the ruling, “Disney has not demonstrated a likelihood of success on the merits of its contributory copyright infringement claim.”

“From Redbox’s perspective, the court’s decision was a common-sense application of the law of contracts to the unenforceable fine print on the outside of Disney’s combo packs,” Brennan said.

However, the court did rule that “at this stage of proceedings, it appears to the court that the First Sale Doctrine is not applicable to this case” – a critical cog in Redbox’s January countersuit against Disney, in which the kiosk operator maintains Disney digital codes should not be treated any differently than physical discs that it is legally entitled to rent.

The First Sale Doctrine, which video retailers used in the early 1980s to establish their right to rent videocassettes over strong studio opposition, says a copyright owner cannot prohibit a purchaser from reselling a copy of a work, such as DVD.

Disney is the only studio that won’t sell product to Redbox. As a result, Redbox staffers buy Disney DVDs and Blu-ray Discs at retail, and then rent the discs while selling the codes – included in Blu-ray Disc combo packs – separately.

Report: Comcast Revisiting Disney Bid

Comcast reportedly is considering revising a previous bid for select assets of 21st Century Fox. The original $60+ billion bid was turned down in favor of Disney’s $52.4 billion offer largely due to antitrust concerns, according to The Wall Street Journal.

Rupert Murdoch, chairman of 21st Century Fox, owns WSJ parent News Corp.

While both companies’ bids for 20th Century Fox film and TV assets — which include Fox 2000, Fox Searchlight, majority control of Hulu, Star India, Sky, FX, Fox’s regional sports networks, including YES and $13.7 billion in Fox debt — were similar, Fox chose Disney’s lower offer due to regulatory concerns.

Indeed, when Comcast — one of the nation’s largest cable operators — acquired NBC Universal, it went to great lengths to assuage regulators’ concerns about unfair competition and monopolies. The company thus agreed to be a silent partner in Hulu, among other arbitration conditions that expired in January.

In acquiring Fox, Comcast seeks additional cable TV networks, in addition to content creation. It’s a strategy AT&T is following acquiring Time Warner. That deal’s future remains unknown and is now under litigation from the Department of Justice, citing antitrust issues.

Separately, Sen. Richard Blumenthal (D-Conn.) in December urged to the DOJ to re-investigate Comcast’s acquisition of NBC Universal following the end of government-imposed conditions.

“If your investigations determine that the Comcast-NBC acquisition will produce anticompetitive effects, even if the merger conditions are retained, you may need to reconsider separating Comcast and NBC universal in order to fully restore competition,” Blumenthal wrote Makan Delrahim, head of antitrust at DOJ.

Meanwhile, Fox has issues of its own. The company’s $16.3 billion attempt to acquire the remaining 61% stake in Sky — Europe’s largest satellite TV operator — was thrown a roadblock when the U.K. watchdog Competition and Markets Authority ruled the deal was not in the public interest.

“Media plurality goes to the heart of our democratic process,” Anne Lambert, chair of the CMA, said in a statement. “It is very important that no group or individual should have too much control of our news media or too much power to affect the political agenda.”

Fox, in a statement, said it would “continue to engage with the CMA ahead of the publication of the final report in May.” Negotiations reportedly could include divesting Sky News from Murdoch’s influence.

 

Disney’s Liz West Gets High-Level Marketing Communications Post at Paramount

Liz West is the new EVP of marketing communications for international theatrical marketing and worldwide home entertainment at Paramount Pictures.

West is a veteran entertainment executive who most recently served as VP of global publicity at the Walt Disney Co.

In her new role at Paramount, she reports to Mary Daily, who joined the studio last September as president of international theatrical marketing and worldwide home media entertainment. Daily previously spent nine years at Twentieth Century Fox Home Entertainment, most recently serving as president and chief marketing officer, worldwide marketing.

In a news release, Paramount says West fills a newly created role in which she will work closely with senior executive teams to drive key worldwide marketing initiatives, including digital and publicity campaigns for international territories.

“As our slate expands and our business grows we are looking to make sure we have a strategic, lifecycle approach to our movies and integrated consumer-facing communications across these areas,” Daily said. “Liz, who is a known strategist with the invaluable combination of both international theatrical and home entertainment experience, is the perfect executive to help lead these efforts.”

West starts at Paramount on Feb. 26.

Her tenure at Disney began in 2006, after eight years at Fox. While at Disney, West won acclaim for leading campaigns for such blockbusters as Star Wars: The Force Awakens, Beauty and the Beast, Guardians of the Galaxy Vol. 2, and  key Disney catalog re-releases, including the successful 3-D re-release in theaters of The Lion King.

West and Daily have worked together before, at Fox, where Daily was VP of Europe from 1995 to 2000. Daily later worked as president, international marketing at Universal Pictures and general manager, programme enterprises at MTV Networks International before returning to Fox in February 2008 as EVP, North America.

Redbox Ups Disney Legal Challenge

Redbox is doubling down on its legal fight with The Walt Disney Co.

The kiosk vendor Jan. 26 filed litigation against Disney companies, including Buena Vista Home Entertainment, Lucasfilm, and Disney-owned “Movies Anywhere” digital movie service.

The suit – filed in U.S. District Court in Los Angeles – alleges Disney is trying to eliminate third-party home entertainment options for its own much-publicized direct-to-consumer streaming strategy.

Redbox says Disney plans to launch a streaming service in 2019, and its majority interest in Hulu as part of the $52 billion acquisition of select 21st Century Fox assets, is driving an “illegal” campaign to prevent it from reselling digital copies of movies contained in Disney combo packs purchased at retail.

Redbox last year began selling digital codes to select Disney movies. Disney in November filed suit seeking an injunction prohibiting Redbox from selling codes to titles such as like Rogue One: A Star Wars Story and Moana at a discount to what digital copies sell for on Amazon or iTunes.

Redbox, in its filing, accuses Disney of abusing its dominant market position and violating the First Sale Doctrine with statements on packaging claiming its digital codes “cannot be resold or rented individually.”

First Sale Doctrine, which video retailers used in the early 1980s to establish their right to rent videocassettes over strong studio opposition, says a copyright owner cannot prohibit a purchaser from reselling a copy of a work, such as DVD.

Redbox maintains the terms on Disney’s packaging are unenforceable, and that it is engaging in copyright misuse and violating California’s unfair competition law.

The kiosk vendor is asking Disney to issue corrective advertising on all existing inventory. It seeks compensatory and punitive damages, in addition to legal fees and costs.

The suit is the latest chapter in Redbox’s tumultuous relationship with Disney. The studio stopped selling its titles to Redbox in 2012, and while other studios have had a change of heart, Disney hasn’t, prompting Redbox to acquire Disney product through retail channels.

Redbox earlier this month filed a countersuit, saying Disney digital codes should not be treated any differently than physical discs that it is legally entitled to rent. It filed a separate motion Jan. 25 asking the court to dismiss Disney’s suit.