On the face of it, Disney
Flops and megahits
Rasulo didn't specify which project was canned, saying only that it was a stop-motion animation feature. That type of movie is rare enough, so the only suspect is the as-yet untitled effort the company was developing with Henry Selick. Cancelling that project might be an opportunity missed; Selick is the writing, directing, stop-motion specialist who formerly adapted Coraline, the hit adaptation of Neil Gaiman's spooky fairy tale novel.
It's been a real up-and-down year for the Mouse's studio entertainment (i.e., movie) division. This past spring it birthed a notorious turkey with the poorly marketed sci-fi epic John Carter. The movie didn't do well, but it wasn't the critical or popular disaster some consider it to be -- U.S. ticket sales were weak, yes, at $73 million but overseas it grossed nearly three times that amount.
Despite Disney's healthy overall Q2 results, the film unit booked an operating loss largely because of Mr. Carter. Studio entertainment was one of only two (out of five) company divisions in the red.
John Carter's performance resulted in a shake-up at the top, with the division's former head stepping down. The company also shifted its strategy toward increased output from its reliably hit-making subsidiaries such as Marvel and Pixar.
Since then, the unit's results have improved drastically, thanks in no small part to the excellent box-office success of The Avengers. The comic-book saga is the top-grossing movie so far this year, with more than $1.5 billion in global ticket sales. It's also one of only three films to cross the $400 million mark in domestic box office, the other two being The Dark Knight Rises from Time Warner's
So all things considered, the cancellation of the Selick movie isn't disastrous. It might limit the skyward climb of the Mouse's stock somewhat, though, since that $50 million is certain to affect the studio division's profitability -- buoyed by The Avengers, the unit posted an operating profit of $313 million in Q3. None of the company's releases this quarter is expected to approach the success of its summer tentpole movie, so a $50 million charge will put a noticeable dent in the bottom line.
However, if we zoom out for a wide shot of Disney's many business lines, this shouldn't be too devastating. First, these days the company takes in around $11 billion in quarterly revenue. Second, in terms of divisional contribution to the total, studio is a distant No. 3 out of the five.
And even though it makes movies seen all over the world, it's responsible for only 15% or so of the company's overall top line. Parks and resorts (bringing in $3.4 billion in the most recent quarter, or 31% of the overall) and media networks (i.e., TV; $5.1 billion, 46%) are much bigger revenue generators.
Switching to another channel
Which is why the news about the movie writedown wasn't the item shareholders had to be most worried about in Rasulo's remarks. Of more concern was his mention that revenue for media networks would be affected by a slump in ad revenues over the summer. Much of this was due to the lucrative, viewer-poaching Olympic Games broadcasted by rival NBC, a subsidiary of the NBCUniversal conglomerate co-owned by Comcast
That's to be expected during the Games, but the anticipated post-Olympic return of advertisers to Disney's ABC didn't happen at the levels the company had hoped for. Advertising, of course, is the bread and butter of TV networks, so when a company warns about a slump, it can be worrying -- particularly in the Mouse's case, since its two big TV cash cows are ABC and the wide range of sports broadcasting from its hugely popular ESPN cable channels.
Rasulo wasn't specific about what this material impact might be for the present quarter, but he made sure to point out that he and the company "don't see that progressing into the next year."
This Mouse is fat and successful
Should investors sell or short Disney on Rasulo's comments? Is the stock about to tumble from its highs? Probably not. Investors should keep an eye on these developments, sure, but realize at the end of the day that most of the company's operations are in rosy, pink-cheeked good health. Consider such Q3 figures as its EPS, which at $1.01 was a very impressive 31% higher year over year, and its segment revenues (up a combined 4%, with all but the small interactive division posting results higher than those of Q3 2011).
Besides, the Mouse has some good, revenue-generating products just introduced or coming down the pipeline. This past June, for example, it opened Cars Land, its sprawling, 11-acre star attraction at Disney California Adventure park (the newer section of the original Disneyland). In the home-theater sphere, it should reap plenty of bucks from comic-book movie fans with this month's Blu-ray/digital download release of The Avengers.
No investor likes a multimillion-dollar charge or an advertising slump. These would harm any media company, but Disney isn't just any media company. It's practically an empire, and a well-diversified one with plenty of strong revenue producers at that.
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