Peter Kafka

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Mickey’s Crummy Quarter: Disney Misses Q1 Earnings, Revenue; More Cuts Coming

No one expected great things out of Disney’s most recent quarter. But Bob Iger and company have still disappointed Wall Street: The company’s earnings of 45 cents per share on revenues of $9.6 billion missed the consensus of 51 cents per share and $10.07 billion, respectively. Disney’s trading down nearly 10 percent in the aftermarket.

Iger’s sort-of mea culpa: “We faced a challenging first quarter with many of our businesses impacted to various degrees by the economic downturn. We are forcefully confronting current circumstance while investing in the great creativity, brands and assets that are Disney’s strengths and keys to its long-term success.”

Like every other big media company, Disney (DIS) is getting killed by the broadcast TV business. Revenues were down 14 percent y/y, and operating income was down 60 percent. (A bad debt charge from Tribune company, whose TV stations won’t be paying their bills because the company declared bankruptcy, didn’t help.) But its cable business remains relatively strong, in large part because cable operators provide it with a steady per-subscriber fee.

But even Disney’s powerhouse ESPN network has gotten roughed up by the recession: Disney says the sports channel saw ad revenue drop “due to a decrease in sold inventory”; meanwhile, costs increased because ESPN is paying through the nose to show us NFL games.

At the beginning of the call, Iger took pains to point out that Disney isn’t just grappling with a lousy economy–it needs to figure out how to transform some of its businesses (mainly, TV and DVD) to adapt to a digital future. Transcript via Marketwatch:

‘Competition for people’s time is increasing and the abundance of choice is allowing consumers to be more selective,’ Iger said during a conference call after the company reported disappointing first fiscal-quarter results. ‘This clearly has had an impact on broadcast television and may have a long-term potential impact on the DVD business….We don’t believe the changes we are seeing in consumer behavior can all be attributed to a weak economy, and we feel it is important for us to address them as more than just cyclical issues.'”

Along those lines, Iger later promised that Disney, which has already started laying people off, would be undergoing a “significant” cost-cutting initiative above and beyond what the company has already announced. But he stressed that not all the savings would be achieved by firing people.

Meanwhile, Disney is now breaking out its digital business for the first time. It has lumped its Disney Interactive Studios unit (games) with Disney Online (Club Penguin,, etc.) along with the company’s mobile stuff (a goose egg, for now) into one “Interactive Media” category. Not included: Any of the revenues or costs of putting Disney’s movies and shows on, Apple’s (AAPL) iTunes.

The results:

Revenues: Up 13 percent to $313 million

Operating Income: Down $58 million to a loss of $45 million.

Disney blames the results on its game business: “Higher sales volume was more than offset by an increase in unit cost of sales and higher marketing expenses in the current quarter.”