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Disney's Hunt for a Happy Ending

By Ronald Grover

STUCK IN PARK. Result? The promotional cost has taken its toll. Theme-park earnings will likely decline to $166 million in the fourth quarter, down 29% from the $235 million in for the year-ago quarter, figures SG Cowen's Singer. While he rates Disney market-perform, Singer has reduced his earnings estimates, in part because of lower theme-park margins.

While Disney awaits the tourists' return, it's struggling on other fronts. Ratings at ABC stubbornly refuse to rise. So, Disney is slashing program costs by relying less on expensive, one-hour dramas and leaning more toward sitcoms, which bring the added benefit of selling better as reruns. Also, the network has reduced what it pays to buy shows from other studios.

Merrill's Cohen estimates that ABC can reduce losses to $420 million in 2004, down from the $540 million it's expected to lose in 2003. She also figures that an advertising upturn will help ABC, its wholly owned and network-affiliated TV stations, and Disney's ESPN cable sports channel, all of which are writing contracts with double-digit price hikes. Overall, Cohen sees earnings at Disney's TV operations rising by 18% this year, to $1.2 billion, and by 30% in 2004, she says.

THE PIXAR WRANGLE. Disney is also overhauling some of its less profitable units. It has hired investment bankers to sell off its 500-outlet Disney Store chain, which analysts figure loses about $100 million a year. Also, it has trimmed the number of products it licenses, focusing on higher-end wares and r

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