Disney’s Q1 studio unit profit falls 64%

WALL-E, Caspian DVD sales trail year-earlier titles

By Danny King -- Video Business, 2/3/2009

FEB. 3 | Walt Disney’s studio entertainment unit’s fiscal first-quarter earnings dropped 64% as DVD titles such as WALL-E and The Chronicles of Narnia: Prince Caspian failed to keep pace with year-earlier releases such as Pirates of the Caribbean: At World’s End, Ratatouille and High School Musical 2. The company, whose sales from older DVD titles also fell, said it was looking to cut costs related to its DVD marketing, production and distribution while possibly raising prices on some of its Blu-ray titles.

Studio entertainment operating earnings for the quarter ended Dec. 27 were $187 million, down from $514 million a year earlier. The division’s sales declined 26% to $1.94 billion and accounted for 20% of the parent company’s revenue, down from 25% a year earlier, the company said in a statement today.

Disney’s DVD sales were consistent with the broader decline in home entertainment demand last year, as the U.S. economic downturn caused customers to cut discretionary spending. Last year, U.S. home entertainment spending fell 5.7% from a year earlier to $21.7 billion despite Blu-ray Disc sales tripling to about $750 million, according to data compiled by Video Business and Rentrak.

"It's clear that the economy has had an impact on DVD sales," said Disney Chief Executive Officer Robert Iger on a conference call with analysts today. "We need to be more selective on what we choose to make and what we choose to distribute."

Iger added that, with many of Disney's Blu-ray titles including features such as a standard-definition of the film and other extras, the company may be able to raise prices on such titles.

Disney last year had about 12% of the U.S. home entertainment market, trailing Warner Home Video, News Corp.’s 20th Century Fox Home Entertainment and Viacom’s Paramount Home Entertainment. WALL-E was the sixth best-selling DVD last year despite a Nov. 18 release date, while the studio’s Enchanted was No. 9. Disney’s No Country for Old Men tied Lionsgate’s 3:10 to Yuma as the third most-rented DVD of last year.

Overall, Disney’s net income fell 32% to $845 million, or 45¢ a share, from $1.25 billion, or 63¢, a year earlier, as sales fell 8.2% to $9.6 billion, the company said today. Disney, whose media networks and parks and resorts units also saw earnings declines, was expected to earn 53¢ a share on $10.17 billion, the average analyst estimates in a Thomson Financial survey.

Disney shares fell more than 7% in extended trading at about 5:30 p.m. Eastern time today.