Eisner’s Reason to Crow

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If The Walt Disney Co. CEO Michael Eisner sounded a little more pleased with himself than usual on the media giant’s fiscal second-quarter conference call May 11, he had more than enough ammunition to back the feeling.

Eisner — approaching his self-imposed retirement deadline of Sept. 30 and having survived an onslaught of dissident directors and shareholders calling for his head in 2002 — started off Disney’s quarterly analysts’ call by quoting a statement he made at a similar call almost exactly two years ago.

“I commented about the things that set Disney apart that would power future growth,” Eisner said. “Specifically, I said, and I quote: 'The fundamental strength of the brand, characters and creativity remains.’ I went on to say: 'I am pleased with the way our management team is responding to the current external challenges’ and I predicted the company would post impressive gains in the months and years ahead.’

'ROARING BACK’

“Twenty-four months later, it is very gratifying to see that my faith in our people, our products and our plans was extremely well-founded. Disney has been roaring back, as we predicted, and is showing strong dependable earnings and attractive growth,” said Eisner. “We have doubled earnings between 2002 and 2004 and are well on our way to delivering healthy double-digit growth this year.”

The fiscal second quarter was a strong one for Disney — earnings rose 27% on a 9% revenue increase, to $7.8 billion.

And unlike earlier periods, when the cable networks propped up underperforming divisions, the second quarter showed strong results virtually across the board.

Theme Parks, long a drag on Disney’s results, reported a 26% rise in revenue and 3% growth in operating income. Studio Entertainment, bolstered by a strong slate of films and DVD sales, reported a 65% rise in operating income on 5% revenue growth in the quarter. Consumer Products’s operating income rose 48%, despite a 9% decline in revenue.

Even though Media Networks — which includes the ABC Television Network and its cable channels — had the slowest growth (revenue was up 6% but operating income rose just 3%), that was more due to accounting than poor performance. Current comparisons did not include a $41 million benefit in the prior year from a bankruptcy settlement with a cable operator in Latin America.

Disney also said it deferred about $111 million of revenue at the ESPN sports channels in the quarter because of recently negotiated contracts with cable and satellite operators. Disney said it would defer the revenue “until certain annual sports programming commitments are satisfied.”

Chief financial officer Tom Staggs said the revenue will be deferred into the second half of the fiscal year, with the bulk likely to be recorded in the fourth quarter.

CABLE RESULTS

While cable operating income declined 1% to $671 million in the period, operating profits at ABC Television nearly doubled in the period to $54 million from $28 million last year, mainly due to the ratings success of several Alphabet Network shows.

Success of those ABC shows — particularly Desperate Housewives and Lost — allowed ABC to pass on one of its signature programs, the long-running Monday Night Football. As part of its new $8.8 billion, eight-year pact with the National Football League, ESPN will carry 17 Monday-night games beginning in 2006.

MNF had been a perennial loss leader for ABC and lost about $150 million for the network last year.

“It was not easy for ABC to say goodbye to Monday Night Football,” president and chief operating officer Bob Iger said on the call. “The improved performance of ABC primetime made it easier.”

Iger, slated to replace Eisner as CEO in September, added that ABC’s primetime ratings are up 15% this year and that the network is expected to turn a profit in fiscal 2005.

Disney is also in discussions with cable and satellite operators to launch an ABC On Demand service, and has already cut deals with 60 carriers to provide ESPN content over mobile phones.

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