BENGALURU: The Walt Disney Company Inc (Disney) reported 15.1 per cent growth in operating income (Op Inc) in the quarter ended 28 June 2014 (Q3-2014) to $3857 million as compared to $3351 million reported in the year ago quarter ended 29 June 2014 (Q3-2014). The company reported 7.7 per cent rise in all revenues to $12466 million in Q3-2014 from $11578 million in Q3-2013.
Five segments contribute to Disney’s numbers – Media Networks; Parks and resorts; Studio entertainment; Consumer products; and Interactive.
Media Networks
The company’s Media Network segment is the largest in terms of contribution to overall revenue and Op Inc. This segment consists of two sub-segments – Cable Networks and Broadcasting.
Disney’s Media Network segment reported 3 per cent rise in revenue from $5352 million (46.2 per cent of all revenues) in Q1-2013 to $5511 million (44.2 per cent of all revenues) in Q1-2014. Op Inc dropped marginally by 0.2 per cent from $2300 million (68.6 per cent of overall Op Inc) in Q1-2013 to $2296 million (59.5 per cent of overall Op Inc) in Q3-2014.
Despite a 1.5 per cent increase in its revenues in Q3-2014 at $3,942 million from $3884 million in Q3-2013, the Cable Networks sub-segment reported 6.9 per cent lower Op Inc at $1942 from $2087 in Q3-2013. Broadcasting reported 6.9 per cent growth in revenue from $1468 million in Q3-2013 to $1,569 million in Q3-2014. The sub-segment’s Op Inc increased 66.2 per cent to $345 million in Q3-2014 from $213 million in the year ago quarter.
Breaking the revenues of the Media networks segment to Affiliate fees, advertising and other, Affiliate fees registered 1.2 per cent increase to $2845 million in the current quarter from $2810 million in Q3-2013. The segment’s advertising revenue in Q3-2014 went up 5.2 per cent to $2142 million from $2047 million in Q3-2013. ‘Other’ revenue in the current quarter went up to $525 million from $504 million reported in Q3-2013.
Explaining the breakup of revenues from the Media network’s segment, Disney says the 1.2 per cent increase in Affiliate Fee revenue was primarily due to increases of 6 per cent from higher contractual rates, partially offset by decreases of 3 per cent from lower recognition of previously deferred revenue at ESPN as a result of changes in contractual provisions related to annual programming commitments and 2 per cent due to the sale of its ESPN UK business in the fourth quarter of the prior year. During the quarter, ESPN recognised $176 million of previously deferred revenue compared to $274 million in Q3-2013.
The 5.2 increase in advertising revenues was due to increases of $86 million at Cable Networks, from $1,001 million to $1,087 million, and $19 million at Broadcasting, from $1,036 million to $1,055 million. The increase at Cable Networks was driven by a 6 per cent increase from higher rates and a 3 per cent increase from more units sold, partially offset by a 1 per cent decrease due to lower ratings.
The increase at Broadcasting reflected a 4 per cent increase from higher primetime and news ratings and a 1 per cent increase due to higher primetime rates, partially offset by a 4 per cent decrease due to fewer units sold.
The increase in other revenue was driven by higher programme sales led by Devious Maids and Marvel's Agents of S.H.I.E.L.D., partially offset by lower sales of Army Wives
Parks and Resorts
Disney’s Parks and resorts segment reported 8.2 per cent growth in y-o-y revenue to $3980 million (31.8 per cent of all revenue) in Q3-2014 from $3678 million (31.9 per cent of all revenue) in Q3-2013. This segment’s Op Inc grew 23.1 per cent to $848 million (22 per cent of overall Op Inc) in Q3-2014 from $689 million (20.6 per cent of overall Op Inc) in Q3-2013.
Domestic (within the US) revenue grew 9.8 per cent to $3290 million in Q3-2014 from $2995 million in the year ago quarter. Disney’s Parks and resorts segment’s international revenue grew 1 per cent to $690 million in the current quarter from $683 million in Q3-2013.
Disney says that revenue growth of 10 per cent at is domestic operations reflected a 7 per cent increase from higher average guest spending and a 2 per cent increase from higher volumes.
Revenue growth of 1 per cent at Disney’s international operations reflected a 4 per cent increase from higher average guest spending and a 2 per cent increase due to the impact of foreign currency translation, partially offset by a 3 per cent decrease from lower volumes and a 2 per cent decrease due to lower Disneyland Paris special event revenue says the company.
Studio Entertainment
Disney’s Studio entertainment segment reported 13.6 per cent jump in revenue in Q3-2014 at $1807 million (14.5 per cent of all revenue) from $1590 million (13.7 per cent of all revenue) in Q3-2013. This segment reported more than double (2.04 times) growth in Op Inc in Q3-2014 to $411 million (10.7 per cent of overall revenue) from $201 million (6 per cent of overall revenue) in Q3-2013.
Three sub-segments of the Studio entertainment segment contribute to Disney’s revenue – Theatrical distribution; Home entertainment; and TV/SVOD distribution and other.
Theatrical distribution segment reported 1.1 per cent fall in revenue from $761 million in Q3-2013 to $753 million in Q3-2014. The Home entertainment segment reported a phenomenal revenue growth of 45.8 per cent to $398 million in Q3-2014 from $273 million in Q3-2013. Disney’s TV/SVOD distribution and other sub-segment reported 18 per cent revenue growth in the current quarter to $656 million in Q3-2014 from $556 million in the year ago quarter.
The company says that theatrical distribution revenue remained relatively flat reflecting the worldwide performance of Marvel's Captain America 2: The Winter Soldier and Maleficent as well as the international performance of Frozen compared to the worldwide performance of Marvel's Iron Man 3 and Monsters University in the prior-year quarter.
Higher Home entertainment revenue reflected a 30 per cent increase from higher average net effective pricing and a 19 per cent increase from higher unit sales. Higher pricing was driven by the current quarter sales mix of new releases, which have a higher relative sales price compared to catalogue titles, reflecting the success of Frozen. Increased unit sales reflected the performance of Frozen in Q3-2014 compared to Oz The Great And Powerful and Wreck-It Ralph in Q4-2013.
The increase in television and subscription video on demand (TV/SVOD) distribution and other revenue reflected an increase of 24 per cent from other revenues, partially offset by a decrease of 6 per cent from lower TV/SVOD revenue.
Higher other revenues reflected an increase at Lucasfilm's special effects business, higher stage play revenues due to more productions in Q3-2014 and higher music distribution revenues reflecting the success of the Frozen soundtrack. The company attributes the decrease in TV/SVOD revenue to lower domestic TV/SVOD sales reflecting a sale of library titles in Q3-2013.
Consumer Products
Disney’s Consumer products segment reported 16.4 per cent increase in revenue in Q3-2014 to $902 million (7.2 per cent of all revenues) from $775 million (6.7 per cent of all revenues) in Q3-2013. This segment reported 24.7 per cent hike in Op Inc to $273 million (7.1 per cent of overall Op Inc) in Q3-2014 from $219 million (6.7 per cent of overall Op Inc) in Q3-2013. This segment has two revenue streams – licensing and publishing (licensing); and retail and other (retail).
Retail sub-segment reported 11.6 per cent growth in revenue from $525 million in the year ago quarter to $586 million in Q3-2014. Retail sub-segment reported 26.4 per cent revenue growth to $316 million in the current quarter from $250 million in Q3-2013.
Disney explains that the 11.6 per cent increase in licensing and publishing revenue was driven by the performance of merchandise based on Frozen, Disney Channel properties, Spider-Man and Planes, partially offset by lower performance of Monsters University merchandise. Licensing also benefited from lower acquisition accounting impacts, which reduced revenue recognition in the prior-year quarter.
The 26.4 per cent increase in retail and other revenue was from our retail business, which was driven by comparable store sales growth in all its key markets. Retail revenue growth also benefited from higher online sales in North America and Europe and a new wholesale distribution business in North America.
Interactive
Disney’s Interactive segment reported more than double the revenue (2.1 times) of $266 million (2.1 per cent of all income) in Q3-2014, up from $125 million (1.6 per cent of all income) in Q1-2013. This segment reported positive Op Inc in the current quarter at $29 million as compared to a loss of $58 million in Q3-2013.
Interactive segment comprises two sub-segments – Gaming; and other content.
Disney’s Interactive segment’s gaming sub-segment reported revenue of $204 million in Q3-2014, up 63.2 per cent at $204 million from $125 million. The other content sub-segment reported Q3-2014 revenue of $62 million as compared to the $58 million in Q3-2013.
Disney says that game revenues grew due to increases of 45 per cent from sales of console games and 28 per cent from social/mobile games revenue. The increase in sales of console games was due to the continued success of Disney Infinity compared to no new releases in the prior-year quarter and higher licensing revenues reflecting the performance of Lego Marvel Super Heroes and Amazing Spider-Man 2.
The increase in social/mobile games revenue was due to the performance of Frozen Free Fall and Tsum Tsum. Higher revenue from other content was due to higher licensing fees from our mobile phone business in Japan.
“Our strategy of building strong brands and franchises continues to create great value across our company,” said Disney chairmen and CEO Robert A. Iger. “This quarter we delivered the highest EPS in the company’s history, and we’ve now generated greater EPS in the first three quarters of FY 2014 than we have in any previous full fiscal year. We’re extremely pleased with these results and we are also thrilled with the spectacular performance of Guardians of the Galaxy, which holds great promise as a new franchise for our company and once again reinforces the tremendous value of Marvel.”
