BENGALURU: The Walt Disney Company Inc (Disney) reported 17.4 per cent higher operating income (op inc) of US$ 3545 million (27.7 per cent of all segment operating revenue or TIO) for Q1-2015 (quarter ended 27 December, 2014 – current quarter) versus US$ 3020 million (24.5 per cent of TIO) in quarter ended 28 December, 2013 – Q1-2014. Op Inc in Q1-2015 was 27.7 per cent more than the Op Inc reported for the immediate trailing quarter (Q4-2014, previous quarter, quarter ended 27 September, 2014) at US$ 2775 million (22.4 per cent of TIO).
Leading the growth with a 45.6 percent y-o-y increase in Q1-2015 at US$ 626 million from the US$ 430 million was its Consumer Products segment (CP). CP’s Op Inc in Q1-2015 grew 65.2 per cent from the US$ 379 million in Q4-2014. Though a couple of Disney’s segments reported drops in revenues, Op Inc of all of Disney’s other segments – Media Networks (MN), Parks & Resorts (P&R), Studio Entertainment (SE) and Interactive, also showed positive y-o-y and q-o-q growth.
Disney’s TIO for Q1-2015 grew 8.8 per cent y-o-y to US$ 13391 million from US$ 12309 million and was 8.1 per cent higher q-o-q than the US$ 12389 million in Q4-2015.
“This was yet another incredibly strong quarter for our Company, with diluted EPS up 23% driven by record revenue as well as significant growth in segment operating income,” said Disney Chairman and CEO Robert A Iger. “Our results once again reflect the strength of our brands and high quality content and demonstrate that our proven franchise strategy creates long-term value across all of our businesses.”
Disney Segment results
Media Networks
MN is Disney’s largest segment, both in terms of revenue and Op Inc. MN reported 2.7 per cent growth in Op Inc to US$ 1495 million (41.2 per cent of all Op Inc) in the current quarter from the US$ 1455 million (48.2 per cent of all Op Inc) in Q1-2014 and a growth of 4 per cent from US$ 1437 million (51.8 per cent of all Op Inc) in Q4-2014.
During Q1-2015, MN revenue grew 10.8 percent to US$ 5860 million (43.8 per cent of TIO) from US$ 5290 million (43 per cent of TIO) in Q1-2014 and was 12.3 per cent more than the US$ 5217 million (42.1 per cent of TIO) in the previous quarter.
Two sub-segments contribute to MN – Cable Networks and Broadcasting
Cable Networks
Cable Networks reported 11 percent growth in revenue in Q1-2015 to US$ 4166 million from US$ 3759 million in Q1-2014. Cable Network’s Op Inc fell 2 percent to US 1255 million from US$ 1277 million in Q1-2014.
Disney says that Operating income at Cable Networks decreased 2 percent due to a decrease at
ESPN, which was partially offset by increases at the worldwide Disney Channels and ABC Family.
The decrease at ESPN was due to higher programming and production costs and, to a lesser extent, higher marketing, general and administrative and technical costs and lower advertising revenue. These decreases were partially offset by affiliate fee contractual rate increases, a reduction in revenue deferrals as a result of changes in contractual provisions related to annual programming commitments and an increase in subscribers, taking into account the new SEC Network.
Programming and production cost increases were due to a contractual rate increase for NFL programming and rights costs for the SEC Network. ESPN advertising revenue decreased due to lower ratings for certain of our programs, partially offset by higher rates.
The increase at the worldwide Disney Channels was due to higher affiliate rates for the domestic channels and higher international advertising revenues, partially offset by higher programming costs.
International advertising revenues were driven by the company’s new channel in Germany, which was launched in January 2014. Increased programming costs were driven by higher pilot write-offs and costs for the new channel in Germany. The increase at ABC Family was due to higher affiliate revenue due to higher rates and increased advertising revenue reflecting higher units sold.
Broadcasting
Revenue from Broadcasting grew 11 per cent to US$ 1694 million in Q1-2015 from US$ 1531 million in Q1-2014. Op Inc for this sub-segment grew 35 per cent to US$ 240 million from US$ 178 million in Q1-2014.
The company says that Operating income at Broadcasting increased due to an increase in affiliate fees and higher program sales. These increases were partially offset by lower advertising revenue.
The increase in affiliate revenues was due to contractual rate increases and new contractual provisions. Program sales growth included higher sales of ‘Criminal Minds’, ‘Scandal’ and ‘Once Upon A Time’. Lower advertising revenue was due to fewer units sold at the ABC Television Network, partially offset by an increase at the owned television stations due to higher political advertising and an increase from higher primetime rates.
Parks & Resorts
P&R revenue in the current quarter at US$ 3910 million (29.2 percent of all revenue) was 8.7 per cent more than the US$ 3597 million (29.2 per cent of TIO) in Q1-2014 but was 1.3 per cent lower than the US$ 3960 million (32 per cent of TIO) in the previous quarter.
P&R reported 20 per cent growth in Op Inc to US$ 805 million (22.7 per cent of all Op Inc) in Q1-2015 from US$ 671 million (22.2 per cent of all Op Inc) and a growth of 17.2 per cent from the US$ 687 million (24.8 per cent of all Op Inc) in the previous quarter.
Disney says that Operating income growth for the quarter was driven by an increase at domestic operations, partially offset by a decrease at its international operations.
Higher operating income at Disney’s domestic operations reflected both higher volumes and guest spending growth at its parks and resorts and, to a lesser extent, at its cruise business, partially offset by higher costs. Guest spending growth at Disney’s parks and resorts reflected higher average ticket prices and increased merchandise, food and beverage spending. The volume increase at its cruise business reflected higher passenger cruise ship days due to the impact of the Disney Magic being in dry-dock for a portion of the prior-year quarter. Increased costs were driven by labour and other cost inflation, higher pension and postretirement medical costs and increased depreciation driven by new attractions.
The decrease at Disney’s international operations was driven by higher Shanghai Disney Resort pre-opening expenses, the impact of a weaker Japanese yen on Tokyo Disney Resort royalties and higher costs at Hong Kong Disneyland Resort, partially offset by an increase at Disneyland Paris. The increase at Disneyland Paris was due to higher guest spending, attendance and occupied room nights, partially offset by higher costs driven by higher volumes, new guest offerings and marketing costs. The increase in guest spending was driven by higher average ticket prices.
Studio Entertainment
SE reported a 1.8 per cent drop in revenue to US$ 1858 million (13.9 per cent of TIO) in the current quarter from US$ 1893 million (15.4 per cent of TIO) reported for the year ago quarter and a 4.5 per cent growth from the US$ 1178 million (14.4 per cent of TIO) in the previous quarter.
SE Op Inc in Q1-2015 grew 30 per cent to US$ 544 million (15.3 per cent of all Op Inc) in the current quarter from US$ 409 million (13.5 per cent of all Op Inc) in Q1-2014 and more than doubled (up 2.14 times) from US$ 254 million (9.2 per cent of all Op Inc) in the previous quarter.
The company says that higher operating income was due to an increase in home entertainment results, higher revenue share with the Consumer Products segment due to the performance of ‘Frozen’ merchandise and higher TV/SVOD distribution results driven by more titles available internationally. These increases were partially offset by lower theatrical distribution results.
The increase in home entertainment results was driven by higher unit sales and lower per unit costs. Unit sales growth was driven by Marvel’s ‘Guardians of the Galaxy’, ‘Frozen’ and ‘Maleficent’ in the current quarter compared to ‘Monsters University’ and ‘The Lone Ranger’ in the prior-year quarter, which did not include the release of a Marvel title. The decrease in unit costs reflected distribution cost savings and lower production cost amortization reflecting a higher amortization rate on The Lone Ranger in the prior year quarter.
Lower theatrical distribution results reflected the performance of ‘Big Hero 6’ in the current quarter compared to Frozen in the prior-year quarter. In addition, the current quarter included the continuing performance of Marvel’s Guardians of the Galaxy, which was released in the fourth quarter of fiscal 2014 whereas the prior-year quarter included the release of Marvel’s ‘Thor: The Dark World’.
Consumer Products
CP Op Inc has been mentioned above. CP revenue in Q1-2015 grew 22.5 per cent to US$ 1379 million (10.3 per cent of TIO) from US$ 1126 million (9.1 per cent of TIO) in Q1-2014 and was 28.6 per cent more than the US$ 1072 million (8.7 per cent of TIO) in the immediate trailing quarter.
Disney says that higher operating income was due to increases at its Merchandise Licensing and Retail businesses. The increase in operating income at Merchandise Licensing was due to the performance of merchandise based on ‘Frozen’ and, to a lesser extent, Disney Channel properties, ‘Mickey and Minnie’, ‘Spider-Man and Avengers’.
At Disney’s Retail business, higher operating income for the quarter was due to comparable store sales growth and higher online sales in all regions driven by sales of ‘Frozen’ merchandise.
Interactive
Interactive is Disney’s smallest in terms of revenue and Op Inc. Interactive reported revenue of US$ 384 million (3.1 per cent of TIO) in Q1-2015, US$ 403 million (3.3 per cent of TIO) in Q1-2014 and US$ 362 million (2.9 per cent of TIO) in Q4-2014.
Op Inc for the Interactive segment grew to US 73 million in Q1-2015 versus the US$ 55 million in Q1-2014 and US$ 18 million in Q4-2014.
The company says that improved operating results were due to an increase at its mobile games business driven by the success of ‘Tsum Tsum’ and ‘Frozen Free Fall’ as well as lower product development costs due to fewer titles in development. This increase was partially offset by lower results at our console games business reflecting higher per unit costs driven by the mix of Disney Infinity products sold, lower unit sales and higher marketing costs. The decrease in unit sales was driven by lower sales of Infinity accessories and catalogue titles, partially offset by higher sales of Infinity starter packs.