Disney to spend on parks, streaming after profit dips
Giant adapting to upheaval in the TV and film industries caused by options like Netflix
LOS ANGELES— Walt Disney Co. is going to spend its way out of its problems.
The world’s largest entertainment company, which reported lower profit Thursday, is already working on a new series of Star Wars films, movies that can cost $250 million (U.S.) each. The company will spend $1 billion more on its theme parks in the new fiscal year and plans to start making movies and TV shows for a new streaming service that will launch in 2019.
Shares of Disney jumped as much as 3.5 per cent, the biggest intraday gain since November 2016, erasing the stock’s losses for the year.
Burbank, Calif.-based Disney is trying to adapt to upheaval in the TV and film industries triggered by new entertainment options such as Netflix. Viewers are spending less time with conventional media, whether it’s televised sports, DVDs or feature films on the big screen, and that’s forcing companies such as Disney to reach out to them directly. All those costs will weigh on profit, the company said.
“They reminded investors that they have these great brands and they’re putting their resources behind them, they’re addressing this head on,” said Robin Diedrich, an analyst at Edward Jones & Co. “The longer-term investor will be comfortable with a couple of years of investing, and a flattish type of earnings.”
A wicked hurricane season, falling advertising sales and a cancelled movie sapped fourth-quarter profit at Disney, the company said, leading to the first drop in annual results since the financial crisis almost a decade ago. The downdraft from bad weather, lower ad sales and a tough year for movies was too powerful even for Disney, which counts on TV, theme parks, consumer products and its famous studio to fuel growth. Chief executive officer Bob Iger warned a year ago that fiscal 2017 would be an “anomaly” and followed up by saying earnings would be “roughly in line” with last year. His forecast was almost spot on.
Fourth-quarter profit at Disney’s cable TV unit, the company’s single biggest profit contributor, slumped 1.2 per cent to $1.24 billion, hurt by weak advertising sales and higher programming costs for baseball and football at ESPN. The company reported a $140-million drop in income from investments, citing higher losses at BAMTech, its streaming unit, and Hulu, as well as lower earnings from A+E Television.
That may explain Disney’s interest in acquiring large parts of 21st Century Fox Inc., including its film studio, some cable channels and stake in consumer TV services.