Disney, Viacom, News Corp See Digital Growth

Digital media is playing a bigger role for old-school media companies, a change increasingly reflected in their bottom lines. The Walt Disney Co., Viacom and News Corp, which all reported earnings this week, showcased positive results for their interactive divisions, while two of them stumbled in other areas.

Disney more than doubled its profit with a 14 percent gain in revenues over the same period last year, reaching $782 million in net income on $8.78 billion in revenue for the quarter. The bulk of revenue comes from its media networks, which include ABC, ESPN, the Disney Channel, and their associated Web sites. That segment brought in 42 percent of Disney’s revenue, compared to parks and resorts, which brought in 29 percent, and studio entertainment at 23 percent.

Disney is focusing on a multi-platform strategy with its broad entertainment properties, which will all be tied together by a new Disney.com site, set to launch in early 2007, Bob Iger, president and CEO of the Walt Disney Co., told investors on a conference call yesterday.

Iger said more than 12 million ABC TV programs have been purchased on iTunes in the last year, and almost 19 million ad-supported episodes have been streamed from ABC.com since the company made six of its primetime shows available for free last month. ESPN, which began airing Monday Night Football this year, is driving a “surge of viewers” to the ESPN Web site each game day. Disney has had similar success with downloads of Disney Channel shows, he said.

“TV viewing and Web use can reinforce, rather than cannibalize each other, when you have a terrific product,” Iger said.

Disney has also had success in monetizing that traffic, according to Iger. The company’s advertising efforts, particularly on the streaming TV shows, has been growing, and Disney is using its multiple media properties to drive more traffic, he said. The company has already invested in beefing up its ESPN.com and ABC.com sites, and is currently working on the Disney.com re-launch, he said.

The new Disney.com site will include online games, social networking and community elements, and other Web-only content. It will also aggregate Disney content from TV, movies and music, as well as its theme parks and cruise ships. The project has been underway since July, and is expected to be completed early next year.

“It will be highly customizable, particularly for different demographic groups, extremely robust in terms of its ability to support new media, and basically state of the art in terms of general features and utilities,” Iger said. “It’s going to offer consumers a fairly deep and seamless experience on all things Disney.”

The company expects Internet and download revenues to total $700 million in fiscal 2007. Iger said growth will come from both paid downloads on iTunes and other services, and from ads sold against streamed shows. So far, the ABC.com shows have garnered CPM rates that are four or five times that of their primetime TV counterparts, from more than 30 advertisers, he said.

That’s partly due to delivering a highly desirable demographic: young, high-income males. It’s also due to the high recall rate Disney has measured with in-stream ads. A May study found that more than 85 percent of viewers remembered the advertisers in a streamed video, he said.

At Viacom, revenues rose 7 percent to $2.66 billion, while operating income dropped 12 percent year to year to $655.5 million, with a $6.7 million loss in its entertainment business that was partially offset by a 14 percent gain in operating income from cable networks.

During a conference call with investors, new CEO Philippe Dauman said Viacom could reach the benchmark of $500 million in digital revenue a year ahead of previous estimates. “I believe that there’s a good chance we could reach $500 million in annual digital sales as early as next year,” he said.

Viacom owns cable networks MTV, Nickelodeon and Showtime, as well as the Paramount movie studio. It split with CBS in December 2005. Viacom purchased Atom Entertainment in August, rolling it into its MTV Networks (MTVN) business along with its popular Neopets franchise.

News Corp. reported adjusted net income of $843 million for its fiscal first quarter, a 45 percent increase over the first quarter a year ago, largely the result of selling some satellite TV properties. Operating profit declined by $58 million to $851 million, due to the timing of home entertainment releases at its film segment.

News Corp.’s Fox television, cable networks and Sky Italia segments saw double-digit operating profit increases, offset by lower film contributions and losses in its “other” segment due to new media acquisitions and initiatives.

News Corp.’s “other” segment revenue dipped by $47 million over the year-ago quarter, which reflects the results of Fox Interactive Media (FIM), which were not included in the 2005 numbers because the division was only created in July 2005 at the same time it acquired MySpace.

COO Peter Chernin said FIM is already profitable, on a pro-forma basis, and would be at break-even next year.

“Well, we are actually profitable now, if you take out management retention and amortization. So I don’t have a target date for overall breakeven, but I believe it will come pretty quickly,” Chernin said. FIM will also benefit from a multi-year search agreement with Google, which guarantees Fox minimum revenue sharing payments of $900 million as long as it meets traffic and other commitments.

Chernin said that while the company is not on an “acquisition hunt” right now, they continue to look for applications which “bolt-on” to MySpace, which would increase usage and improve monetization. It is also keeping an eye on “Web 2.0” applications relating to content or to social networking, he said.

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