Disney posts profit hike

But Iger cites need for shorter DVD windows

By Jennifer Netherby -- Video Business, 8/9/2005

AUG. 9 | Disney president and CEO-designate Robert Iger said Tuesday that Disney and the rest of the entertainment industry should rethink spending on movie production and marketing and consider shorter windows between theatrical and DVD releases.

Disney saw a 17% drop in home video unit sales during the fiscal third quarter, ended June 30, with DVD shipments down 5 million units to 59 million units. Fewer big titles were released during the quarter, and those that were issued faced increased competition in stores, officials said, as the studio experienced more returns than expected on unspecified titles.

Iger said it is not inconceivable that the studio would release a DVD even during theatrical runs and added that TV windows also must be reconsidered.

“Consumers have a lot more authority these days,” Iger said in an earnings conference call. “We can’t stand in the way, and we can’t allow tradition to stand in the way of where consumers can go and want to go. … Windows need to compress.”

Despite a drop in earnings in its studio entertainment division, blamed on a weak DVD slate, Disney reported a 41% jump in company profit to $851 million for the fiscal third quarter.

Revenue climbed 3% in the quarter, to $7.7 billion. The performance was driven by strong growth in its media networks division, which includes ABC and ESPN.

Earnings were released after the stock market closed, with Disney shares gaining 73¢, or 3%, to close at $26.14 amid an upbeat broader market.

The company’s studio entertainment division had a $34 million operating loss, which compared with a $28 million profit in the same period a year earlier. Execs said the red ink was traceable in part to DVDs selling less well than previously in comparison to individual titles’ box office performances.

The division’s revenue slid 15% to $1.5 billion during the quarter.

During the quarter, Disney released National Treasure and The Pacifier on DVD, while the studio continued to benefit from sales of March release The Incredibles. That compares to last year’s period, which included Kill Bill: Vol. 1, Scary Movie 3, Bad Santa, Brother Bear and Cold Mountain, as well as continued sales of Finding Nemo.

Iger said DVD sales on new releases now come almost entirely during the first month of a movie’s home video release, which is making the studio reconsider how it spends marketing dollars and how many units should be shipped.

Those changing dynamics also are causing the company to discuss changes in production costs and marketing costs on movies going forward, though he said it is still too early to make decisions on long-term changes.

“Although, what we’re seeing should be a wakeup call to the entire industry in terms of expenses,” Iger said.

The studio expects sales on upcoming DVD special edition releases of Toy Story and Toy Story 2 to be strong, but executives didn’t say how many units would be shipped of those titles.

Meanwhile, Disney took a $24 million writedown for its MovieBeam venture, which it shuttered earlier this quarter with plans to relaunch later in the year. Disney didn’t discuss MovieBeam during the call, but the company said it plans to be at the forefront of digital initiatives going forward.

The company is still in talks with Pixar to renegotiate its production deal, but executives said it is too early to say what will happen.

Separately Tuesday, a Delaware judge rejected a lawsuit claim that Disney had acted improperly in paying out lavish severance to former president Michael Ovitz in 1997. A shareholders group had claimed directors shirked their fiduciary responsibilities by allowing the payout.