Inside Out 2 has been a big winner for Disney. Photo / Disney
Inside Out 2 has been a big winner for Disney. Photo / Disney
The record-setting box office performance of Inside Out 2 boosted Walt Disney’s third-quarter earnings and revived confidence in the Pixar animation studio, but the company warned slowing consumer demand at its US theme parks could continue into next year.
Theme parks have been Disney’s growth engine since pandemic restrictionsbegan to lift. In the 2023 fiscal year, the parks business unit contributed 70% of Disney’s entire operating profit, providing a financial backstop as it lost money on its streaming efforts and as its traditional television networks declined.
But Disney warned on Wednesday that revenues and operating income from its parks unit were hit by a “moderation of consumer demand...that exceeded our previous expectations” towards the end of the June quarter.
Quarterly operating profit for Disney’s parks business unit fell 3% compared with a year ago, to $2.2 billion. Sales of consumer products dropped 5% at the theme parks from the same period a year earlier. In response, the group said it planned to “aggressively manage” costs at the parks.
“The lower income consumer is feeling a bit of stress, the higher income consumer is travelling internationally a bit more,” Disney chief executive Bob Iger told investors on a call.
Iger described it as “a bit of a slowdown that is being more than offset by the entertainment business”.
Shares in Disney fell more than 2% shortly after Wall Street’s opening bell on Wednesday.
Weakness in the parks was offset by strength in Disney’s film studio and streaming business. Iger praised the progress in the entertainment businesses, which had been suffering from a dearth of box office hits and losses at its streaming services.
“What we’ve been seeing with streaming is significant success driven largely by the success of our creativity” he said, listing television shows such as Shōgun and The Bear and movies including Deadpool and Wolverine and Inside Out 2.
Inside Out 2 has taken in more than $1.5b at the global box office since its June 14 release, making it the highest-grossing animated film of all time.
That performance, along with improvement at its Disney+ and Hulu streaming services, helped push operating income at Disney’s entertainment division to $1.2b in the fiscal third quarter, up from $408m a year earlier.
Together Disney’s three streaming services — Disney+, ESPN+ and Hulu — reported an operating profit of $47m in the quarter, compared with a $512m operating loss a year ago.
After a scarcity of breakout hits at the box office in 2022 and 2023 — including by Pixar and Marvel — Iger last year called for a focus on quality over quantity.
Marvel’s, released on July 26, has been a breakout hit with nearly $900m in box office revenues ahead of its third weekend.
Overall, Disney made net income of $2.6b on revenue of $23.2b in the quarter.
Disney’s diluted earnings of $1.39 a share were well ahead of Wall Street expectations of $1.19 and up from $1.03 a year earlier. The company raised its full-year target for adjusted earnings per share.
Warner Bros Discovery writes down its television channels by $15 billion
Warner Bros Discovery has written down the value of its traditional television networks by $9.1n (NZ$15.18b), a dramatic recognition of how fast streaming is eroding the cable business model behind channels such as CNN, HGTV and the Food Network.
The non-cash charge led the US entertainment group to report a quarterly net loss of $10b, which compared to Wall Street’s expectations of a $542 million loss and exceeded its total revenue of $9.7b.
The stark revaluation reflects a determination that WBD’s television channels are no longer what they were worth just two years ago, when the company was formed from the merger of Discovery and WarnerMedia.
“It’s fair to say that even two years ago, market valuations and prevailing conditions for legacy media companies were quite different than they are today, and this impairment acknowledges this,” chief executive David Zaslav told investors. “The market conditions within the traditional business are tough.”
“It’s an accounting reflection of the state of the industry,” said chief financial officer Gunnar Wiedenfels.
“Am I disappointed about the impairment? Yes,” Wiedenfels said. “There’s been talk about recovery [in the traditional television market] a year, or year-and-a-half ago. It hasn’t really happened.”
Mike McRoberts and Samantha Hayes among staff leaving the Warner Bros Discovery New Zealand building in Eden Terrace, Auckland, earlier this year. WBD gutted its news and current affairs operations. Photo / Alex Burton
Shares in WBD dropped more than 9% in after-hours trading. The company’s stock had already fallen by almost 70% since it was formed in 2022 in a $40b merger that was meant to help two legacy media groups survive the brutal streaming battle.
Quarterly revenue fell short of forecasts, weighed by WBD’s television networks, which were hit hard by shrinking audiences as people cancel their pay-TV subscriptions.
Revenue at WBD’s television business unit dropped 8% from a year ago to $5.3b. Rival Disney reported earlier on Wednesday that its television network revenue fell 7% to $2.7b in the quarter.
Zaslav and his team have been discussing strategic options as they try to reverse WBD’s sinking share price. They considered breaking up the company but have concluded that this is not currently the best option, the Financial Times reported earlier this week.
Zaslav on Wednesday told analysts: “We have to ... consider all options. But the number one priority is to run this company as effectively as possible.”
The group’s streaming and HBO cable businesses added 3.6 million direct-to-consumer subscribers in the quarter, reaching 103.3m subscribers globally.
“We recognised early on this was a generational disruption ... requiring us to take bold, necessary steps,” said Zaslav.
Written by: Anna Nicolaou in New York and Christopher Grimes in Los Angeles
