Disney Earnings Are Strong, But Interactive Lags

Walt Disney

Disney (NYSE: DIS) may be dedicated to turning around its interactive media group, but the numbers released by the company today show the company has a ways to go. The interactive media group continues to be the only segment of Disney’s operations that’s losing money. This quarter, it lost $86 million, compared with a $65 million loss in 2010. The losses in digital contrast with financial results coming out of the overall Disney empire. The company as a whole had a solid quarter, with net income of $1.48 billion compared to $1.33 billion last year.

Disney’s overall results put it well ahead of analysts’ expectations. Interactive is by far the smallest of Disney’s operating segments, and the overall success of the company will give it plenty of time-and cash-to engineer the turnaround it’s looking for in its digital media division.

The loss at interactive comes despite substantially higher revenue-$251 million compared with $197 million in the same quarter last year. Included in the segment’s $86 million loss this year is some of the expense of acquiring Playdom, $21 million in “purchase accounting adjustments” for the quarter. but the company doesn’t break out how much. The console game business, which is part of the interactive division, saw an increase in sales, with games like Lego Pirates of the Caribbean and Cars 2 doing well.

The company’s overall Q3 success comes primarily from Disney’s television properties, and ESPN in particular. On the earnings call today, CEO Bob Iger said that there are now 107 million people per week who “read, watch, listen or log on to ESPN-branded media.”

Disney is looking forward to more sports-driven television success in the near future. Iger was also eager to tell analysts about a long-term deal the company inked in May to broadcast Pac-12 college sports. ESPN also grabbed exclusive U.S. broadcast rights to Wimbledon, a 12-year deal that sources told the LA Times was worth an estimated $480 million.

Not hot on streaming. But if you’re wondering when you’ll be able to catch all that great sports content on your mobile device, don’t hold your breath-especially if you’re not a cable subscriber with ESPN access. When asked about how the company might stream some of that live sports content onto consumers’ computers and mobile devices, Iger made clear that any plans for digital distribution would need to avoid stepping on the toes of the cable companies, which pay for ESPN and other Disney channels. “With a pretty aggressive approach to authentication, we can incentivize customers to either sign up with, or stick with, multichannel distributors,” said Iger. “The relationship we have with distributors is a valuable one and one we aim to respect.”

Answering another question about new models of distribution, Iger also made it clear he wasn’t eager to run back into the arms of Netflix (NSDQ: NFLX) anytime soon, again deferring to Disney’s pay TV distributors. While the company is “in discussions” with Netflix and others, any deal to stream content would have to “protect and respect the channel distribution value we see today,” said Iger. The digital media deals that Disney is considering involve older, less valuable content-“largely library in nature, with very little, if any, in-season.”

So far, Disney’s only authentication deals are for ESPN; the live-streaming Watch ESPN apps have been downloaded more than 2.5 million times. Unlike Fox (NSDQ: NWS), which has announced an authentication deal that includes Hulu Plus, nothing yet for Disney, which co-owns the online video portal with News Corp. and NBCUniversal (NSDQ: CMCSA). Iger told an analyst: “You are right in your assessment that we’ll basically push the window back or make access to the programming more difficult or later, except if customers are authenticated as a subscriber.”

Movies. Disney’s movie earnings were essentially flat, with $1.62 billion in revenue compared to $1.64 in Q3 2010. The big Disney releases of the quarter, Cars 2 and Thor, didn’t do as well as last year’s hits, Toy Story 3 and Iron Man 2. But the company had a huge hit with Pirates of the Caribbean: On Stranger Tides, which Iger boasted has become the eighth movie in history to break the $1 billion mark in global box-office earnings.

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