English Entertainment
FY-2015: Disney revenue up 7.5%; net income up 11.7%
BENGALURU: The Walt Disney Company Inc reported 7.5 per cent YoY increase in consolidated revenue at $52,465 million for the year ended 3 October, 2015 (FY-2015, current year) as compared to the $48.813 million reported for the year ended 27 September, 2014 (FY-2014, previous year). Net income in the current year increased 11.7 per cent YoY to $8.382 million from $7,501 million.
“We had a strong quarter, with adjusted EPS up 35 per cent, completing our fifth consecutive year of record performance. In Fiscal 2015 we delivered the highest revenue, net income and adjusted EPS in the Company’s history, reflecting the power of our great brands and franchises, the quality of our creative content, and our relentless innovation to maximize value from emerging technologies,” said Disney chairman and CEO Robert A Iger.
For the quarter ended 3 October, 2015 (Q4-2015, current quarter), consolidated revenue increased 9.1 per cent YoY to $13.512 million as compared to $12,389 million in the quarter ended 27 September, 2014 (Q4-2014). Net Income in Q4-2015 increased 7.3 per cent to $1,609 million as compared to $1,499 million.
Segment Results
Four of the five Disney’s segments – Media Works, Parks and Resorts, Studio Entertainment and Consumer Products reported growth in revenue in FY-2015 and Q4-2015 as compared to FY-2014 and Q4-2014 respectively, while the fifth segment – Interactive – reported decline in revenues. However, all the five segments reported growth in segment operating income in the current year and quarter as compared to the previous year and year ago quarter respectively.
Media Networks
Media Networks revenue in FY-2015 increased 10 per cent to $23,264 million from $21,152 million in the previous year. Segment Operating income increased 6.4 per cent in the current year to $7,793 million as compared to $7,321 million in FY-2014.
The segments revenue in the current quarter increased 11.7 per cent YoY to $5,286 million from $5,217 million. Operating income for the segment increased 26.6 per cent YoY to $1,819 million from $1,437 million.
Disney says that Operating income growth at Media Networks was driven by higher affiliate fees, increased advertising revenue at ESPN and the ABC Television Network and higher operating income from program sales. These increases were partially offset by an increase in programming and production costs at ESPN and, to a lesser extent, the Disney Channels and the ABC Television Network.
Two sub-segments contribute to Disney’s Media Networks – Cable Networks and Broadcasting.
Cable Networks
Cable Networks revenue in FY-2015 increased 9.7 per cent to $16,581million from $15,110 million in the previous year. Segment Operating income increased 4.9 per cent in the current year to $6,787 million as compared to $6,467 million in FY-2014.
The sub-segments revenue in the current quarter increased 12.4 per cent YoY to $4,245 million from $3,776 million. Operating income for the sub- segment increased 29.8 per cent YoY to $1,655 million from $1,275 million.
For Q4-2014, Disney says that Operating income at Cable Networks increased due to an increase at ESPN and, to a lesser extent, A&E Television Networks (A&E) and the Disney Channels. The increase at ESPN reflected higher affiliate and advertising revenues, partially offset by an increase in programming costs. Affiliate revenue growth was driven by contractual rate increases and an increase in subscribers. The increase in subscribers was due to a full quarter of the SEC Network, which launched in August 2014, partially offset by a decline in subscribers at certain of Disney’s networks.
Growth in advertising revenue reflected higher units sold, partially offset by lower ratings. Higher programming costs reflected a full quarter for the SEC Network, additional rights for the US Open Tennis tournament and contractual rate increases for Major League Baseball and NFL rights, partially offset by the absence of rights costs for NASCAR.
Higher equity income from A&E was due to lower programming and marketing costs, partially offset by lower advertising and affiliate revenue. The increase at Disney Channels was driven by higher affiliate revenues, partially offset by higher programming costs. Affiliate revenue growth reflected contractual rate increases domestically and subscriber growth internationally. The programming cost increase was driven by higher costs for original programming, including more hours of new series in the current quarter.
Broadcasting
Cable Networks revenue in FY-2015 increased 10.6 per cent to $6,683 million from $6,042 million in the previous year. Segment Operating income increased 17.8 per cent in the current year to $1,006 million as compared to $854 million in FY-2014.
The sub-segments revenue in the current quarter increased 9.7 per cent YoY to $1,581 million from $1,441 million. Operating income for the sub-segment was flat YoY to $164 million from $163 million.
For Q4-2014, Disney says that growth in advertising and affiliate revenue was offset by higher programming costs, lower operating income from program sales, an equity loss from Hulu and higher marketing costs for the fall season launch. The increase in advertising revenue reflected higher units sold, including the benefit of the extra week of operations, and higher rates. Affiliate revenue growth was due to contractual rate increases and new contractual provisions. Higher programming costs reflected the impact of an additional week of operations. Lower operating income from program sales was driven by an increase in cost amortisation and lower sales. Program sales reflected decreases for My Wife and Kids and America’s Funniest Home Videos, partially offset by the sale of How to Get Away with Murder in the current quarter. The equity loss from Hulu was due to higher content and marketing costs.
Parks & Resorts
Parks and Resorts segment revenue in the current year increased seven per cent to $16,162 million as compared to the $15,099 in FY-2014. Segment Operating income increased 13.8 per cent in the current year to $3,301 million as compared to $2,663 million in FY-2014.
The segments revenue in the current quarter increased 10.1 per cent YoY to $4,361 million from $3,960 million. Operating income for the segment increased 7.4 per cent YoY to $738 million from $687 million.
Growth at Parks and Resorts was driven by Disney’s domestic operations due to higher average guest spending, attendance and occupancy, partially offset by increased costs driven by inflation and volumes. Results at Disney’s international parks and resorts operations reflected lower attendance and occupancy at Hong Kong Disneyland Resort and higher pre-opening expenses at Shanghai Disney Resort.
Studio Entertainment
Studio Entertainment segment revenue in the current year increased 1.2 per cent to $7,366 million as compared to the $7,278 in FY-2014. Segment Operating income increased 27.4 per cent in the current year to $1,973 million as compared to $1,549 million in FY-2014.
The segments revenue in the current quarter was flat (increased 0.3 per cent) YoY to $1,783 million from $1,778 million. Operating income for the segment more than doubled (2.09 times) YoY to $530 million from $254 million.
At Studio Entertainment, operating income growth was due to a higher revenue share with the Consumer Products segment reflecting the success of Frozen merchandise, an increase in television distribution revenue and higher domestic theatrical results. This growth was partially offset by a decline in home entertainment units sold reflecting the success of Frozen in the prior year.
For Q4-2015, Disney says that Operating income growth was due to increased TV/SVOD distribution results, lower film cost impairments, improved theatrical results and a higher revenue share with the Consumer Products segment. These increases were partially offset by lower home entertainment results.
The increase in TV/SVOD distribution was driven by a lower average production cost amortisation rate, the timing of title availabilities in international pay and domestic free television markets as well as SVOD revenue growth internationally. Lower production cost amortisation reflected a higher sales mix of catalogue titles in the current quarter.
Operating income growth in theatrical distribution was driven by the performance of Inside Out and Ant-Man in the current quarter compared to Guardians of the Galaxy, Maleficent and no Pixar title in the prior-year quarter. Theatrical distribution revenues were lower in the current quarter as the prior-year quarter also included Planes: Fire and Rescue and The Hundred-Foot Journey, whereas the current year included no Disney feature animation or DreamWorks titles in release. Increased revenue share was due to the performance of Frozen merchandise in the current quarter.
The decrease in home entertainment was due to lower net effective pricing and unit sales reflecting the prior-year quarter performance of Frozen internationally and Marvel’s Captain America: The Winter Soldier worldwide, partially offset by Marvel’s Avengers: Age of Ultron and Cinderella in the current quarter. These decreases were partially offset by lower per unit costs as well as decreased marketing spending in the current quarter.
Consumer Products
Consumer Products segment revenue in the current year increased 12.9 per cent to $4,499 million as compared to the $3,985 in FY-2014. Segment Operating income increased 29.2 per cent in the current year to $1,752 million as compared to $1,356 million in FY-2014.
The segments revenue in the current quarter increased 11.5 per cent YoY to $1,195 million from $1,072 million. Operating income for the segment increased 9.8 per cent YoY to $416 million from $379 million.
Consumer Products operating income growth was due to higher merchandise licensing revenue reflecting the strength of Frozen, Avengers and Star Wars Classic merchandise.
Interactive
Interactive segment revenue in the current year reduced 9.6 per cent to $1,174 million as compared to the $1,299 in FY-2014. Segment Operating income increased 13.8 per cent in the current year to $132 million as compared to $116 million in FY-2014.
The segments revenue in the current quarter reduced 4.1 per cent YoY to $347 million from $362 million. Operating income for the segment increased 72.2 per cent YoY to $31 million from $18 million.
Interactive growth was driven by the ongoing success of the Tsum Tsum mobile game and lower product development and marketing costs, primarily at Disney’s mobile businesses, partially offset by lower operating income from Disney Infinity console games.
UK: The aerial is losing its grip. As broadband becomes the default way Britons watch television, the UK is edging towards a decisive, and divisive, question: should Freeview be switched off by 2034? The issue, highlighted in reporting by The Guardian, has exposed deep fault lines over access, affordability and the future of public service broadcasting.
For nearly 25 years, Freeview has delivered free-to-air television from the BBC, ITV, Channel 4 and Channel 5 to almost every corner of the country. Even now, it remains the UK’s largest TV platform, used in more than 16m homes and on around 10m main household sets. Yet the same broadcasters that built it are now pressing for its closure within eight years.
Their case rests on a structural shift in viewing. Smart TVs, superfast broadband and the Netflix-led streaming boom have pulled audiences online. Advertising economics have followed. By 2034, the number of homes using Freeview as their main TV set is forecast to fall from a peak of almost 12m in 2012 to fewer than 2m, making digital terrestrial television, or DTT, increasingly costly to sustain.
But critics say the rush to switch off risks abandoning those least able, or least willing, to move online.
“I don’t want to be choosing apps and making new accounts,” says Lynette, 80, from Kent. “It is time-consuming and irritating trying to work out where I want to be, to remember the sequence of clicks, with hieroglyphics instead of words. If I make a mistake I have to start again.”
Lynette is among nearly 100,000 people who have signed a “save Freeview” petition launched by campaign group Silver Voices. She fears the government is about to “take [Freeview] away from me and others who either don’t like, can’t afford, or can’t use online versions”.
Official figures underline the fault lines. A report commissioned by the Department for Culture, Media and Sport estimates that by 2035, 1.8m homes will still depend on Freeview. Ofcom’s analysis shows those households are more likely to be disabled, older, living alone, female, and based in the north of England, Wales, Scotland and Northern Ireland.
Freeview is owned by the public service broadcasters through Everyone TV, which also operates Freesat and the newer streaming platform Freely. After two years of review, DCMS is expected to set out its position soon, drawing on three options proposed by Ofcom: a costly upgrade of Freeview’s ageing technology; maintaining a bare-bones service with only core PSB channels; or a full switch-off during the 2030s.
The broadcasters have rallied behind the third option. They argue that 2034 is the logical cut-off, when transmission contracts with network operator Arqiva expire. By then, they say, the cost of broadcasting to a dwindling audience will far outweigh the returns from TV advertising.
Ofcom agrees a crunch point is approaching. In July, the regulator warned of a “tipping point” within the next few years, after which it will no longer be commercially viable for broadcasters to carry the costs of DTT.
Others see risks beyond economics. Questions remain over whether internet TV can reliably deliver emergency broadcasts, such as the daily Covid updates, in the way that universally available DTT can. The UK radio industry has also warned that an internet-only future for TV could push up distribution costs and force some radio stations off air if PSBs no longer share Arqiva’s mast network.
“It is a political hot potato,” says Dennis Reed, founder of Silver Voices, who says he has “dissociated” his organisation from the government’s stakeholder forum, which he believes is “heavily biased” towards streaming.
The Future TV Taskforce, representing the PSBs, counters that moving online could “close the digital divide once and for all”. “We want to be able to plan to ensure that no one is left behind,” a spokesperson says, adding that rising DTT costs could otherwise mean cuts to programme budgets.
The numbers show the scale of the challenge. Of the 1.8m Freeview-dependent homes projected for 2035, around 1.1m are expected to have broadband but not use it for TV. The remaining 700,000 are forecast to lack a broadband connection altogether.
Veterans of the analogue switch-off, completed in 2012 after 76 years, recall similar fears of “TV blackout chaos”. Around 6 per cent of households were labelled “digital refuseniks”, yet a targeted help scheme and a national campaign, fronted by a robot called Digit Al voiced by Matt Lucas, delivered a largely smooth transition.
This time, the BBC is less keen to foot the bill. Tim Davie, the outgoing director general, has said the corporation should not fund a comparable support programme for a Freeview switch-off.
Research for Sky by Oliver & Ohlbaum suggests that with early awareness campaigns and digital inclusion measures, only about 330,000 households would ultimately need hands-on help ahead of a 2034 shutdown.
Meanwhile, viewing habits continue to fragment. Audience body Barb says 7 per cent of UK households no longer own a TV set, choosing to watch on other devices. In December, YouTube overtook the BBC’s combined channels in total UK viewing across TVs, smartphones and tablets, albeit measured at a minimum of three minutes.
That shift may accelerate. YouTube has recently blocked Barb and its partner Kantar from accessing viewing session data, limiting transparency just as online platforms consolidate power.
“When the government chose British Satellite Broadcasting as the ‘winner’ in satellite TV it was Rupert Murdoch’s Sky instead that came out on top,” says a senior TV executive quoted by The Guardian. “There already is such an outsider ready to be the winner in the transition to internet TV; it is YouTube.”
Freeview’s future now hangs on a familiar British dilemma: modernise fast and risk exclusion, or protect universality and pay the price. Either way, the aerial’s days as king of the living room look numbered.
