Its media business may be struggling, but Disney (NYSE:DIS) as a whole is doing just fine. The entertainment giant recently posted healthy increases on both the top and bottom lines for its fiscal second quarter.
Movies and parks led the way
Our results this quarter reflect strength in our parks and resorts and studio entertainment segments. -- CFO Christine McCarthy
A few areas of Disney's entertainment empire struggled during the quarter. Its consumer products division, for one, posted flat sales and lower profits due to weak results in Disney's retail stores.
And the media business was hurt by sluggish advertising revenue, mainly thanks to more declines in the base of pay TV subscribers. However, those challenges were offset by big wins in Disney's studio segment and its parks and resorts division.
Theatrical sales faced a tough comparison given the blockbuster success of Beauty and the Beast in the prior-year period. Yet Black Panther's popularity made passing that bar look easy. The film helped push studio revenue up 21% as operating profit jumped by 29% to $847 million. And, with Avengers Infinity War dominating in its debut, Disney now claims 9 of the top 10 biggest domestic box office openings on record.
The parks business arguably performed even better. Disney raised prices across many of its resorts and still attracted higher attendance and increased hotel occupancy, leading to a 13% spike in sales and 27% higher profits. This segment is becoming more important to the media giant's broader results, responsible for 28% of overall profits in the past six months, compared to 23% a year ago.
Getting ready for a new media world
Our incomparable collection of strong [global] brands puts us in great position to lead the way when it comes to building the direct relationships with consumers that will define the future of media. -- Iger
With only one month of signup and viewing data collected, Disney didn't have much information to share with investors about the recently launched ESPN Plus app, its boldest attempt yet to break its content out of the broadcast TV ecosystem. Iger only said that the app's early reviews were positive and "the response of sports fans has been enthusiastic."
It's clear that executives see the direct-to-consumer model as the future of the industry, though, and they're allocating a huge amount of technical and content-gathering resources toward preparing for it. Disney recently lifted its tech development spending plans, for example, and now sees the streaming division removing $180 million from earnings this year rather than the $130 million they had initially targeted.
The path that ESPN Plus takes over the next few months will tell investors a lot about how plausible Disney's hopes are for maintaining its earnings power through a shift to a subscription-based streaming service starting in late 2019.
Executives are excited about the possibilities of building a global service that might someday rival Netflix, given the robust slate of content they will launch across the Marvel, Disney Animation, LucasFilm, and Pixar studios over the next two years. "The deeper we delve into the possibilities of this platform," Iger said, "the more excited we are by its potential to drive value." Now it's up to Disney to convert that attractive potential into reality.