Disney pulls plug on Infinity as earnings disappoint

The Walt Disney Co, an investor favourite for consistently beating Wall Street earnings targets, reported a rare miss on Tuesday as advertising and subscriptions declined at sports channel ESPN and theme park revenue came in weaker than expected.

The home of Mickey Mouse got a boost from animated hit film Zootopia but it announced an exit from the video game business as it dropped the Infinity it launched with great fanfare in 2013.

Shares of the world’s best-known entertainment company fell about 6% in afterhours trading, to around $100.85.

Disney and other media companies have been hit by the trend of “cord-cutting” as younger viewers opt for streaming services over cable and satellite TV channels. Investors are particularly focused on how ESPN, one of the strongest cable brands, weathers the storm.

“Cable networks continue to face meaningful headwinds and Disney has yet to really answer how they are going to restore growth,” BTIG analyst Richard Greenfield said.

Excluding some items, Disney earned $1.36 per share, missing analyst average expectation of $1.40 per share. Revenue rose to $12.97 billion from $12.46 billion, below the Wall Street target of $13.19 billion, according to Thomson Reuters I/B/E/S.

Chief executive Bob Iger told analysts that he did not currently have any plans to stay at Disney beyond his contract’s expiration in June 2018. Some industry analysts believe he could be asked to stay longer.

The company’s board is searching for Iger’s successor after the unexpected departure of chief operating officer Tom Staggs.

For the quarter that ended April 2, revenue missed expectations at cable networks, theme parks and consumer product divisions, according to data from FactSet StreetAccount.

Revenue in Disney’s cable networks business fell 1.86% to $3.96 billion.

Operating income in the division rose 12.34%, mainly due to lower programming costs and higher fees from pay TV distributors.

ESPN subscriptions fell. Ad revenue also dropped, which Disney attributed to a change in timing of college football playoff games.

Disney took a $147 million charge for abandoning its Infinity game. The company will focus on licensing its characters for video games rather than publishing its own titles, Iger said.

Studio revenue for the quarter increased 22% to $2.1 billion, powered by the boxoffice success of Star Wars: The Force Awakens and animated movie Zootopia, which has grossed nearly $1 billion worldwide.

Revenue in the company’s theme park business rose 4.5% to $3.9 billion.

Attendance was “weaker than expected, a meaningful surprise for investors,” BTIG’s Greenfield said.

Higher pre-opening expenses for its Shanghai theme park, which opens next month, also dragged down the unit’s results, Disney said.

Net income attributable to the company rose to $2.14 billion in the second quarter ended April 2, from $2.11 billion a year earlier.