Disney’s Profit Soars, but Focus Remains on Its Coming Streaming Service

Posted November 8, 2018 10:34 p.m. EST
Updated November 8, 2018 10:36 p.m. EST

LOS ANGELES — Disney returned to annual profit growth Thursday after a difficult 2017, the result of blockbuster movies, rising theme park attendance and a stabilizing ESPN.

Despite reporting a record profit of $12.6 billion for its fiscal year, The Walt Disney Co. spent most of a call with analysts discussing its high-risk plan to introduce a Netflix-style subscription streaming service late next year, which will carry enormous content, technology and marketing expenses.

Robert Iger, Disney’s chief executive, unveiled the name of the streaming service Thursday, telling analysts on a conference call that it would be called Disney Plus, styled by the company as Disney+. The name parallels the one for Disney’s fledgling sports streaming service, ESPN Plus.

In addition to the original shows and films already announced, Disney Plus will include a live-action “Star Wars” series based on the rebel spy Cassian Andor, a character from the 2016 film “Rogue One: A Star Wars Story.” Diego Luna will reprise the role, Iger said.

Disney Plus will also feature a live-action Marvel series about Loki, the god of mischief from the “Thor” movies. Tom Hiddleston will reprise that role.

Iger also gave an update on Disney’s $71.3 billion acquisition of most of 21st Century Fox. European regulators approved the deal Tuesday, which Iger called a “major milestone.” Disney is still waiting for approval from a handful of countries, but Iger said he expected the deal to close “meaningfully earlier” than June, Disney’s initial time frame.

As for Sky, the British pay-television company that Disney lost to Comcast in a September bidding war, Iger said, “You can’t cry over spilled milk — nothing you can do about it.” He conceded that it would take Disney “a little bit longer” to roll out Disney Plus in Europe as a result.

For the most recent quarter, the fourth in Disney’s fiscal year, net income totaled $2.3 billion, a 33 percent increase from a year earlier. Profit for the year rose 40 percent. Analysts had expected far less growth for both the quarter and year.

Although Disney ended its fiscal year on a high note, the coming quarter may be rough. Christine M. McCarthy, Disney’s chief financial officer, cautioned that movie operating income could fall by as much as $600 million — or roughly 70 percent — because of comparisons to “Star Wars: The Last Jedi” in 2017. The lack of a “Star Wars” movie over the holidays will also hurt Disney’s consumer products business. And programming costs at ESPN will climb because of the timing of sporting events.

There were also areas of weakness in the quarter that just ended. Disney Consumer Products reported another drop in operating income — its fifth quarterly decline in a row — because of write-downs related to the Disney Store chain and worsening licensing results for the “Cars” franchise. Disney also disclosed that it had written off about 40 percent of its investment in the moribund Vice Media, or $157 million.

And Disney turned to discounting to prop up attendance at Shanghai Disney Resort. “We saw some softness in the tourism market in China,” Iger said. “Not just for us, but across the board.” He added that much of the discounting had ended. “We still believe very, very, very bullishly” in the resort, he said.

Overall, however, it was a strong quarter for Disney, with each of its biggest divisions — movies, theme parks and television — contributing in a significant way to results, a contrast to a year ago, when movies and television sputtered.

Movie operating income more than doubled, to $596 million, because of fewer film-related write-offs and scorching ticket sales for “Incredibles 2” and “Ant-Man and the Wasp.” Disney’s theme parks had operating income of $829 million, an 11 percent increase, because of growth at Walt Disney World in Florida, which suffered from Hurricane Irma in 2017.

And quarterly profit at Disney’s vast television business, which includes ESPN, ABC, Disney Channel and the Freeform network, climbed 9 percent, to $5.96 billion.

Results at ESPN were flat; higher subscription fees were offset by a decline in advertising. Lower costs helped Disney Channels Worldwide and Freeform deliver improved results. ABC benefited from sales of reruns for the sitcom “black-ish,” but continued to suffer from declining ratings: Increases in political ad revenue were offset by “lower network impressions.”

Disney shares climbed about 1.7 percent in aftermarket trading, to $118.