Disney Reports Another Mixed Quarter

Revenue was flat versus last year at $14.2 billion as the growth at parks and resorts offset the declines at the studio and consumer products. Media networks revenue fell 1% as affiliate fee growth was weaker than expected at 2% year over year, despite a 7% increase in contractual rates. While worrisome, we think that the inclusion of Disney channels in every OTT pay service available demonstrates the strength of the firm’s overall channel package. Advertising declined 6% due to lower impression and two fewer NBA Finals games. Operating margin for the segment fell by 840 basis points due to higher content costs including the NBA rights.

The 12% topline growth at park and resorts was driven by the Shanghai resort as well as improved results at Disneyland Paris. Studio revenue was down 16% due to a tough comp with Captain America: Civil War, The Jungle Book, Finding Dory, and Alice all in the third quarter last year. As a reminder, fiscal 2017 will be a down year for the studio side given the weaker slate. Overall segment operating income fell 10% to $4.0 billion, as the 22% decline at media networks more than offset the 18% improvement at parks and resorts and the 12% growth at consumer products.

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