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Star Wars delivers Disney record quarter

starwarsThe Walt Disney Company has reported record quarterly earnings of $2.9 billion (2.6bn) for its first fiscal quarter ended January 2nd 2016 compared to $2.2 billion for the prior-year quarter.

“Driven by the phenomenal success of Star Wars, we delivered the highest quarterly earnings in the history of our Company, marking our 10th consecutive quarter of double-digit EPS growth,” said Robert A. Iger, Chairman and Chief Executive Officer, The Walt Disney Company. “We’re very pleased with our results, which continue to validate our strategic focus and investments in brands and franchises to drive long-term growth across the entire Company.”

Media Networks

Media Networks revenues for the quarter increased 8 per cent to $6.3 billion, reflecting higher advertising and affiliate revenues, and segment operating income decreased 6 per cent to $1.4 billion. Advertising revenue growth was due to an increase in units sold and higher rates, partially offset by lower ratings. Affiliate revenue growth was due to contractual rate increases, partially offset by a decline in subscribers and unfavourable foreign currency translation impacts.

Cable Networks

Cable Networks revenues for the quarter increased 9% to $4.5 billion and operating income decreased 5 per cent to $1.2 billion due to a decrease at ESPN and lower equity income from A&E, partially offset by growth at the domestic Disney Channels.

The decrease at ESPN was due to higher programming costs, partially offset by an increase in advertising and affiliate revenues. Results for the quarter were negatively impacted by the timing of our fiscal quarter end relative to when College Football Playoff (CFP) bowl games were played, which resulted in an increase in programming costs and advertising revenues. Six CFP games were aired in the current quarter that were aired in the second quarter of the prior year. Increased programming costs due to the CFP games as well as contractual rate increases for NFL and college football programming were partially offset by the absence of rights costs for NASCAR. Higher advertising revenue was due to an increase in units sold and higher rates, both of which benefited from the CFP. Affiliate revenue growth was due to contractual rate increases, partially offset by a decline in subscribers and unfavourable foreign currency translation impacts.

Lower equity income from A&E was due to lower advertising revenue and higher programming costs.

The increase at the domestic Disney Channels was due to higher program sales in the current quarter and affiliate revenue growth, partially offset by higher programming costs. Increased programming costs were driven by higher costs for original programming.

Broadcast

Broadcasting revenues for the quarter increased 7 per cent to $1.8 billion and operating income decreased 7 per cent to $223 million due to higher programming costs and an increase in equity losses from Hulu, partially offset by advertising and affiliate revenue growth and higher program sales. The increase in programming costs was due to a higher average cost of new scripted programming and the costs of airing New Year’s Eve specials that aired in the second quarter of the prior year. Higher equity losses from Hulu were due to increased programming and marketing costs driven by new content offerings, partially offset by higher subscription and advertising revenues. The increase in broadcasting advertising revenue was due to higher units sold, higher rates and the airing of New Year’s Eve specials. These increases were partially offset by lower network ratings and a decrease in political advertising at the owned television stations. Higher programming sales were driven by the sale of Jessica Jones in the current quarter.

Studio Entertainment

Studio Entertainment revenues for the quarter increased 46 per cent to $2.7 billion and segment operating income increased 86 per cent to $1 billion. Higher operating income was due to an increase in theatrical distribution results, a higher revenue share with the Consumer Products & Interactive Media segment, growth in TV/SVoD distribution and increased home entertainment results. These increases were partially offset by the impact of foreign currency translation due to the strengthening of the U.S. dollar against major currencies.

The increase in theatrical distribution results and higher revenue share with the Consumer Products & Interactive Media segment were due to the strong performance of Star Wars: The Force Awakens in the current quarter. Higher TV/SVoD distribution results were driven by international growth and the increase in home entertainment results was due to sales of Star Wars Classic titles.

Consumer Products & Interactive Media

Consumer Products & Interactive Media revenues for the quarter increased 8% to $1.9 billion and segment operating income increased 23 per cent to $860 million. Higher operating income was due to growth at our Merchandise Licensing business and, to a lesser extent, at our Publishing and Games businesses, partially offset by a decrease at our Retail business and the impact of foreign currency translation due to the strengthening of the U.S. dollar against major currencies.

The increases at Merchandise Licensing and Publishing were due to higher licensing revenues from the performance of Star Wars merchandise and the timing of minimum guarantee shortfall recognition at Merchandise Licensing. At Games, growth was due to higher licensing revenue from the success of Star Wars: Battlefront, partially offset by lower Disney Infinity results. The decrease from Disney Infinity was due to higher inventory reserves and lower unit sales volume. The decrease at Retail was due to lower comparable store sales and margins in Europe and North America as well as at our online business in North America, reflecting strong sales of merchandise based on Frozen in the prior-year quarter, partially offset by current quarter sales of Star Wars merchandise.

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