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Fox film division spoils Disney’s Q3

Bob Iger is scrapping the majority of Fox's existing development slate after profits dropped 51% in the third quarter, while Disney+ is adapting classic Fox brands such as Home Alone into shows.
August 7, 2019

In its first full quarter since closing its acquisition of Fox, Disney’s profits dropped 51% to US$1.4 billion, due to big Fox film misses.

Despite a 33% revenue increase to US$20.2 billion, the media giant’s earnings per share fell 28% to US$1.35, missing Wall Street predictions of US$1.75 per share on revenue of US$21.5 billion.

A US$170-million operating loss at Fox’s film studio was a big contributor to Disney’s lackluster Q3. According to Disney’s chief financial officer Christine McCarthy on the company’s Tuesday earnings call, the loss was driven by box office flop Dark Phoenix, marketing for future releases and development expenses. On a budget of US$200 million, the X-Men movie only generated US$65 million at the US box office and US$186 million internationally, according to Box Office Mojo. In the same quarter last year, Disney estimated that 21CF’s film studio generated about US$180 million in operating income.

“One of the biggest issues we faced in this quarter was the Fox studio performance, which was well below where it had been and well below where we hoped it would be when we made the acquisition,” said Disney chief Bob Iger.

As a result, Disney Studios’ co-chairmen Alan Horn and Alan Bergman are implementing a new Fox live-action development slate that will focus on a select group of movies for theatrical release and direct-to-consumer platforms Hulu and Disney+.

Iger noted that Fox franchises (including Avatar and Planet of the Apes, as well as Marvel’s X-Men, Fantastic Four and Deadpool, which are now part of Marvel Studios under the leadership of Marvel Cinematic Universe architect, Kevin Feige) have long term value. Iger also confirmed that Fox franchises Home Alone, Diary of a Wimpy Kid, Cheaper by the Dozen and Night at the Museum (pictured) will be reimagined as Disney+ series.

Despite the transitional period, Disney’s studio entertainment revenue rose 33% to US$3.8 billion, while the segment’s operating income increased 13% to US$792 million. The lift was driven by Avengers: Endgame, Aladdin, Captain Marvel and Toy Story 4.

As for the company’s direct-to-consumer and international segment, revenue jumped from US$827 million to $3.8 billion, but a US$553-million operating loss was incurred due to the consolidation of Hulu, ESPN+ investment and higher costs associated with Disney+.

The company also revealed it will offer a US$12.99 streaming bundle of Hulu, ESPN+ and Disney+ to help it compete with Netflix, Amazon and WarnerMedia’s upcoming SVOD HBO Max. Disney+ is set to launch in the US on November 12 at US$6.99 per month. The new bundle will also be available at launch. According to Iger, Disney is in discussions with Apple, Amazon and Google to make Disney+ available to the third-party platforms.

Looking at Disney’s parks, experiences and products segment, lower attendance at Star Wars: Galaxy’s Edge at Disneyland in Anaheim, California also led to Disney’s weaker than expected Q3 earnings. McCarthy acknowledged that fewer annual pass holders visited the resort and some potential visitors to Florida parks delayed their trips to wait for the May 31 opening of Star Wars: Galaxy’s Edge.

About The Author
Jeremy is the Features Editor of Kidscreen specializing in the content production, broadcasting and distribution aspects of the global children's entertainment industry. Contact Jeremy at jdickson@brunico.com.

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