Wall Street Gives Disney a Pass as Iger Grabs Mouse’s Reins

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For many companies, a 27-percent drop in quarterly profits might be the occasion for contentious conference calls with analysts and a sell-off by investors.


But Walt Disney Co.’s diversity and perhaps a little honeymoon glow appeared to work in Robert Iger’s favor for his first earnings report since becoming chief executive of the entertainment giant on Sept. 30.


A $313 million loss at Burbank-based Disney’s film division, compared with a $23 million profit a year ago, was softened by improved performance at the ESPN cable sports channels and the ABC television network, the latter benefiting from a string of hit shows that include “Desperate Housewives,” “Grey’s Anatomy,” and “Lost.” Operating income at Disney’s media networks unit rose 41 percent, to $632 million, with revenue up 16 percent, to $3.35 billion.


The company also sought to clear out a backlog of Miramax films, such as the disappointing “The Great Raid,” and “The Brothers Grimm,” in advance of Bob and Harvey Weinstein’s end-of-quarter departure from the film company they sold to Disney in 1993.


In addition, the company’s yearlong 50th anniversary celebration of Disneyland boosted theme park and resort revenues by 10 percent, to $309 million. Overall, fourth-quarter net income was $379 million, compared with $516 million for the like period a year earlier.


Disney shares, which closed at $24.94 on Nov. 22, are off 17 percent from their 52-week high a downdraft that some analysts say has been exaggerated by new accounting requirements for stock options.


While acknowledging the previous quarter as disappointing, Iger noted that “adapting to new business conditions within an established company is never easy, but here at Disney it is a real priority.”



Iger’s role


Analyst reactions of the quarter and the company’s outlook vary widely. Some noted that Iger’s sharpened focus on creating original content that can be distributed on a variety of new platforms sets the stage for a smoother transition to a digital media age. Among recent initiatives cited was an agreement with Apple Computer Inc. to provide video content for the iPod.


“We believe Bob Iger can be a change agent, not only for Disney but for the entire entertainment industry,” said Natexis Bleichroeder Inc. analyst Alan Gould.


He noted that the company’s size enables it to experiment with investments in new technologies that might drag down the bottom line of a smaller competitor. “Mr. Iger comes as a new CEO with the luxury and scale of the Disney franchise behind him,” Gould said.


But CIBC World Markets analyst Jason Helfstein was skeptical, telling clients that he didn’t believe Disney has enumerated a clear enough plan for how it would realign assets to pursue Iger’s goals.


“The key question is whether Disney will have enough content in future years … or attempt to move its broadcast and cable audiences to its online presence,” Helfstein wrote in an investor note, in which he lowered the stock from “sector perform” to “sector underperform” (the only analyst downgrade following the quarterly report). “If the company decides to pursue the latter, we think online content acquisitions become inevitable.”


Raymond Lee Katz, an analyst at Bear Stearns, gives Iger credit in establishing partnerships with other companies for content and distribution. “We continue to believe there is value in Disney not being fully recognized by the street,” Katz wrote in an investor note.


Analysts are waiting to see whether Iger can extend Disney’s lucrative distribution deal with Pixar Animation Studios Inc. Pixar Chairman Steve Jobs has said that Christmas is the deadline for reaching an agreement.


Pixar, which itself reported stronger-than-expected third quarter earnings, has held off announcing its new slate of films until its distribution situation gets sorted out. “We are in deep discussions with Disney and I can’t comment on them,” Jobs told analysts.


While Iger has expressed strong interest in cutting a deal with Pixar, Disney has fared better than expected with its own computer-animation film, “Chicken Little, which has generated box office revenues of around $100 million since its opening on Nov. 4. It was Disney’s first fully computer-animated feature.


Disney is looking for even brighter holiday returns for the first installment of its heavily promoted adaptation of the C.S. Lewis classic, “The Chronicles of Narnia,” which opens Dec. 9.

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