Today was earnings day and with earnings of 58 cents, Disney beat the street by three cents and is up seven cents from last year. But today wasn't just earnings day, Disney also announced that they acquired Club Penguin, a massively multiplayer online role playing game designed for children. The rumored cost was $350 million and the founders will remain with Disney and will keep their headquarters in British Columbia. Club Penguin, which was reported to be the target of many entertainment conglomerates. Club Penguin already has 12 million registered users with 700,000 paying subscribers.
The model is that if you pay, about five dollars a month, you get access to special features. Disney just transitioned Toontown Online from a subscriber based buisness to an advertiser supported buisness. Disney has not intention of changing Club Penguin's buisness model at this time. Also the acquisition was justified on the increased value of growing the subscriber base with Disney's marketing reach, especially internationally. Disney will leverage Radio Disney, Disney Channel, and the Disney parks to market Disney's newest asset.
Bob Iger really likes the concept of creating virtual worlds. The first one Toontown seems to be doing well. The Pirates game has experienced many delays, so perhaps the Club Penguin folks will be able to help. A Disney Fairies MMORPG should be released next years targeting girls. Disney is continuing to spend a lot in digital initiatives such as Disney.com and video games. Hopefully this will yield great results, both financial and creative, in the near future.
Pirates and Ratatouille are doing well for the studios. This quarter is facing tough comparisons to last year when Disney had Pirates 2 and Cars in addition to the Narnia DVD release. That being said, the studio buisness was still up from last year with Pirates 3 making 950 million dollars worldwide and with Ratatouille nearing $200 million domestically. While many view Ratatouille's performance as disappointing, Bob said that since it was the best reviewed film of the year he expects it to do well on DVD and be a valuable Disney franchise in the future.
The ABC television network is doing well with hits such as Desperate Housewives, Grey's Anatomy, and Ugly Betty. ABC is keeping costs under control with cost per entertainment hour being lower compared to last year. In the upfront advertising process, Disney already has $2.4 billion in advertising commitments.
At Disney Channel, everyone is gearing up for the premiere of High School Musical 2. The Disney Channel Original Movie has been seen by over 160 million viewers worldwide and soundtrack sales now top 7 million while 7.8 million DVDs and 4.5 million books have been sold. 2000 licensed productions are underway in schools and community theaters, with a tours crossing the country for both the stage and the ice. Disney Channel is also supporting the "Mickey and Friends" and "Winnie the Pooh" franchises with their respective shows airing on the Playhouse Disney programming block.
ESPN is continuing to grow and achieved great ratings with its first NASCAR race in many years. ESPN is expected to drive growth for Disney, especially internationally in the future. ESPN also benefited for lower rights payments to the NFL.
The Parks & Resorts segment also faced tough comparrisons to last year because of The Happiest Celebration on Earth campaign. That being said, attendence was flat while guest spending increased, Internationally, attendence at Disneyland Paris is up 9%. Tom Staggs acknowleged Hong Kong Disneyland is performing not as well as expected but that Disney will be investing in marketing as well as new attractions to turn the park's fortunes around. Capital expenditures at the Parks and Resorts domestic buisness are up $125 million compared the first nine months of last fiscal year. This is because of the deposits made on the two new Disney cruise ships as well as new attractions being built at the Disneyland Resort. When asked if Disney felt it was getitng value from the Pixar transaction. Tom replied that he said they will be adding a lot of Pixar based attractions to the park in order to differentiate the parks from their competitors.
When asked if Disney is woried about being a cyclical buisness, Tom and Bob both respectfully disagreed. They felts that when the company wasn't performing well it was that they were suffering a creative crisis that happened to coincide with an economic downturn. I take this to mean that when Michael Eisner blamed his challenge's on the economy, the current administration blamed it on not offering a quality entertainment product,
I am glad that the current regime is doing great things. It is a great time to be a Disney fan.