Strong 2Q for Mouse House

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Revenue rose 3%, operating income increased 7% and earnings rose 12% during the fiscal second quarter at The Walt Disney Co., fueled mainly by strong performance at its cable and broadcast networks.

For the quarter ended March 31, revenue at the media giant rose to $8.02 billion from $7.8 billion in the prior-year period and operating income was $1.43 billion, up from $1.34 billion one year ago. Net income came in at $733 million (37 cents per share) compared with $657 million (31 cents) in 2005.

Disney shares hit a new 52-week high Tuesday ($29.60 per share, compared with the previous high of $29.15 each), before closing at $29.58, up 2.8%, or 81 cents per share, in anticipation of strong results. Disney released its second-quarter results after market close Tuesday.

Driving most of that growth was strong performance at its media-networks division (which includes ESPN, Disney Channel and the ABC broadcast network), where revenue increased 18% to $3.55 billion and operating income increased 20% to $969 million. Most of that growth was due to the resurgence of ABC -- revenue at ABC was up 28% to $1.8 billion (compared with a 9% increase to $1.8 billion in cable) and operating income increased more than four times to $160 million from $38 million in 2005. Operating income at the cable networks was up 5% to $809 million.

That performance offset a sluggish quarter at its studio-entertainment division (where revenue declined 22% to $1.77 billion and operating income fell 39% to $147 million). At parks and resorts (which includes Walt Disney World and Disneyland), revenue was up 7% to $2.25 billion and operating income rose 17% to $214 million. Consumer-products revenue was down 3% in the period to $451 million and operating income dipped 8% to $104 million.

On a conference call with analysts, CEO Bob Iger was high on Disney’s recent move to place ad-supported episodes of its top broadcast programming -- Alias, Lost, Desperate Housewives and Commander in Chief -- online, adding that it could expand to its other properties.

Iger added that Disney’s focus has been to make ABC, Disney and ESPN “networks of the future” that offer multiple services like commerce, games, music, customization and regionalization.

“I think we’ve got an opportunity here to take advantage of the trends on the Internet, which is growth in advertising, growth in consumption, the popularity of features like user-created videos or community functionality or communications, all with an underpinning of great creativity and strong brands,” Iger said.

“As you look at the company’s future in this space, you have to focus first on ABC, ESPN and Disney,” he added. “What follows we’re not 100% sure, but this is definitely the focus.”

Iger also pointed to Time Warner Inc.’s Warner Bros. home-entertainment group’s recent deal to sell and rent some movie and television content online through BitTorrent. Iger said that while he didn’t advocate using BitTorrent, the idea appeals to him.

“The whole notion of using peer-to-peer sharing mechanism to move content is one that we have been very interested in and actually have been working on ourselves,” he added.

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