Caught up by weak holiday DVD sales and a brutal recession that has cut into television advertising and consumer spending, Walt Disney Co. reported a 32% drop in quarterly net income.
All of Disney's major divisions -- the movie studio, the television group, parks and resorts, and consumer products -- experienced drops in operating income for the fiscal first quarter ended Dec. 27, compared with the same period last year. The company's net income fell to $845 million, or 45 cents a share, from $1.3 billion, or 63 cents, a year earlier. Revenue fell 8% to $9.6 billion.
Disney badly missed analysts' projections. Those surveyed by Thomson Reuters had expected, on average, earnings of 52 cents a share on revenue of $10.1 billion.
Disney Chief Executive Bob Iger said the entertainment giant was reeling from more than the effects of consumers scaling back spending amid the "weakest economy in our lifetime." At the same time, Disney is grappling with fundamental changes in how people seek to be entertained -- changes that are undermining the company's television business and eroding DVD sales.
"We don't believe the changes we are seeing in consumer behavior can all be attributed to a weak economy," Iger said. "And we feel it is important for us to address them as more than just cyclical issues. The combination of these changes with the severe economic downturn has caused us to examine much of what we do."
Studio executives, who often rely on DVD sales to push a film into the black, quietly have been expressing concern about a 30% decline in DVD shipments to retailers in the fourth quarter. This drop in home entertainment sales hit Disney's studio hard. Disney's studio division revenue for the quarter fell 26% to $1.9 billion and operating income plunged 64% to $187 million. Consumers bought fewer new releases on DVD and there was less demand for Disney's classic titles.
Anthony J. DiClemente, an analyst with Barclays Capital, said this was the first time a studio executive had publicly acknowledged that falling DVD sales might have something to do with changes in how people watch films. The shift could rock the economics of the movie industry, which depends on home video sales for as much as 70% of a film's profit, he said.
"With the DVD business in decline, it brings to question whether or not investment in filmed content is going to generate an adequate return on capital for Disney or other media company shareholders," DiClemente said. "The industry is caught in a vortex of dramatic, structural change."
