Disney Digital Narrows Losses As Revs Rise 20 Percent

The Walt Disney Co. (NYSE: DIS) posted healthy gains this past quarter, and the company cited box office successes such as Alice In Wonderland and the acquisition of Marvel, which has the number one film at the box office with Iron Man 2, as the reasons for the growth. In little over a week, Iron Man 2 grossed over $334 million worldwide. Meanwhile, the interactive segment also looked pretty good. Digital revenues were up 20 percent to $155 million, within the segment’s operating results improving from a loss of $61 million in the prior-year quarter to a loss of $55 million this time around. The stronger digital results were directly attributed to higher Club Penguin subscription revenues and lower video game inventory costs, partially offset by higher internet product development and sales and marketing costs.

Highlights from the earnings report:

— Operating income at Cable Networks grew $39 million to $1.2 billion for the quarter driven by an increase at ESPN. Those increases were credited to higher affiliate revenue and, to a lesser extent, advertising revenue, which was up in the single digits. The gains, however, were partially offset by higher programming costs. Most notably, digital revs at ESPN were up 30 percent.

— In a sign of how directly opposite the fortunes of the cable side and the broadcast side can be, operating income at Broadcasting fell $39 million to $123 million for the quarter primarily due to decreased primetime and news ad revenues at the ABC Television Network. Higher production costs related to sales of ABC Studios productions and higher primetime programming costs also contributed to the challenges there in the past quarter.

— iPad opportunities: Bob Iger, Disney’s chairman and CEO, led off the call, talking about the excitement over Iron Man 2 and the confidence the company has in its partnership with Marvel on upcoming superhero films, such as the forthcoming Thor. And given the popularity of ABC’s iPad app, Iger said the Apple (NSDQ: AAPL) device offered choices for consumers and therefore, opportunities for Disney.

— On ABC News: The unit has gone through an “exhaustive” cost reduction process. The company has taken substantial cost reductions. “We explored a joint venture with CNN a few years ago,” but those talks went nowhere. As for the rumors that CBS (NYSE: CBS) and CNN are looking at a formal collaboration, said CFO Jay Rasulo. “We are not looking to outsource news.”

— Marvel Mobile: While the ability to integrate Marvel characters into Disney theme parks is limited in the short term, Iger said, there are many things that are being planned for social media and mobile apps. In particular, Iger cited the recent success of the Marvel mobile app on the iPad and iPhone.

— Sharing Iron Man: Given the success of most of the Marvel films, isn’t Disney the least bit tempted to cut short the distribution deal Marvel has with Viacom (NYSE: VIA) and its film unit Paramount? Iger was fairly tight-lipped, indicating that the company would simply wait until that previous deal sunsets. More to come