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Disney Misses, Without a Hit

With few hit movies or shows of late, Walt Disney posts a 32% decline in first-quarter profits

In this economy, it's tough to come off a strong year. Last year, Walt Disney (DIS) was firing on all cylinders, with strong DVD sales for its Disney Channel blockbuster, High School Musical 2, and the hit movie Pirates of the Caribbean: At World's End. Without any large breakout films now, though, the Burbank (Calif.) company announced on Feb. 2 a steep 32% drop in first-quarter net income, as customers avoided its massive theme parks and ad sales tanked at both its ABC network and ESPN cable channel.

Diluted earnings per share for the quarter were 45¢, vs. 63¢ a year ago. The current quarter included a 4¢ per share gain from the sale of Disney's investment in two pay television services in Latin America. Analysts had expected earnings to come in at 52¢ a share.

The biggest blow came at the ABC network, which saw overall earnings fall by 60% as the company said sales declined at the network and the 10 stations it owns. ABC also took a charge for bad debts for a syndicator of reruns that went bankrupt, the company said.

Lower Theme Park Attendance

Disney's theme park company, which should have enjoyed a healthy Christmas season, instead was saddled with lower attendance, mostly at its parks in the U.S. Overall, the theme park unit saw its overall earnings fall 24%, to $382 million. The movie studio, which did have some hits with films like the animated flick Bolt, saw operating earnings fall 64%, to $187 million.

"We faced a challenging first quarter, with many of our businesses impacted to various degrees by the economic downturn," said Disney CEO Bob Iger. "We are forcefully confronting current circumstances while investing in the great creativity, brands, and assets that are Disney's strengths and keys to its long-term success."

Disney shares slid in after-hours trading.

In a conference call with analysts, Iger said the company would make significant changes in the way that it makes and markets films. "We need to be careful about what we choose to make and distribute," he said. "The cost of the system needs to come down."

Although Iger wasn't specific about the changes, he did say that it was likely Disney would make fewer films in the future and that it would take a hard look at the timing of its releases on DVD as well as whether, in some cases, it might be able to charge more for high-definition Blu-ray DVDs, which the company has begun to ship in large quantities this year.

In one bit of good news, Iger said that through the first month of the current quarter attendance is up by a single-digit percentage at Walt Disney World, which has a promotion under way that gives visitors three nights out of a week for free. At Disneyland, Iger said, attendance is up by a double-digit percentage. He also said foreign attendance is still showing an overall increase, although he wouldn't break out numbers.

Grover is Los Angeles bureau chief for BusinessWeek.

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