By Erich Schwartzel and Maria Armental
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (August 7, 2019).
LOS ANGELES -- A star-crossed "X-Men" movie and rained-out
cricket matches contributed to growing pains at the newly
integrated Walt Disney Co. and 21st Century Fox Inc.
Despite the blockbuster success of Disney's "Avengers: Endgame,"
the three months ended June 29 were marred by the weak performance
of Fox entertainment assets purchased in the $71.3 billion deal
that closed in March.
Disney fell short of analysts' expectations for the quarter,
sending shares down more than 3% in after-hours trading
Tuesday.
Behind the disappointment were some of the high-profile assets
acquired in the Fox deal. Fox movies like "X-Men: Dark Phoenix"
flopped, even as Disney's own hits set records.
Fox's Star India, a TV network considered a linchpin in Disney's
international expansion strategy, dragged down the company's
direct-to-consumer segment after several matches in a major cricket
tournament were canceled.
Disney Chief Executive Robert Iger opened his earnings call with
investors by declaring it among the most complicated in his 14-year
tenure as CEO.
Disney's purchase of Fox -- a deal that turned the world's
largest entertainment company into an even more powerful colossus
-- has given Disney valuable franchises like "Avatar" and
significant overseas expansion.
But it has also tied the industry leader to a smaller rival that
has lagged behind so far this year.
The Fox deal was driven by a companywide pivot toward a
streaming strategy that will begin piping Disney programming into
homes when a Disney-branded service launches in November.
Disney said Tuesday that that forthcoming service, called
Disney+, will be available as a bundle along with its ESPN+ and
Hulu offerings for $12.99 -- the same price as Netflix Inc.'s most
popular subscription plan.
Disney+ on its own will cost $6.99 at launch, the company has
said.
Marketing for that service should begin in earnest at the end of
this month, Mr. Iger said, and be featured by nearly every division
of the company, from hotels to branded credit cards.
" 'Comprehensive' is probably an understatement" for the
marketing strategy, Mr. Iger said, calling the service "the most
important product that the company has launched during my tenure in
the job."
Continued expenses related to launching Disney+, which requires
dozens of hours of newly produced programming, should lead the
company's direct-to-consumer division to lose about $900 million in
the quarter that ends in September, said Disney finance chief
Christine McCarthy.
The Fox deal is still on track to produce about $2 billion in
cost synergies by fiscal 2021, she added.
Profit in the company's fiscal third quarter declined 40% to
$1.76 billion, or 97 cents a share. Excluding charges related to
the integration of the Fox properties and other items, profit fell
to $1.35 a share from $1.87 a share. Revenue was $20.25
billion.
Analysts surveyed by FactSet had projected $1.46 a share, or
$1.72 a share as adjusted, on $21.45 billion in revenue.
In the first complete quarter since the deal's closing, Disney
booked an impairment charge on the Fox flop "Dark Phoenix," leading
Mr. Iger to tell investors that his better-performing Disney studio
was taking charge of the Fox operation.
Fox's studio performance was "well below where we hoped it would
be when we made the acquisition," he said.
The 14-month delay between when the deal was announced and when
it was completed likely contributed to the poor performance of
Fox's slate, he added, saying that "decision-making can grind to a
halt" at a company when an acquisition has been announced.
Many workers at Fox spent those months unsure of whether they
would be moving to Disney when the deal closed, and it had been
unclear how some of Fox's edgier movies would move forward in
Disney's family-friendly slate.
Fox assets in the studio segment contributed a $170 million loss
tied to "Dark Phoenix" and other expenses.
The Fox team has been brought under the Disney wing, Mr. Iger
said, adding that the "X-Men" franchise is now controlled by the
company's Marvel Studios, which has a nearly flawless record at the
box office.
Given how long it takes to develop and produce a movie, Mr. Iger
cautioned investors not to expect Fox's studio fortunes to improve
overnight.
"You'll see those results in a couple of years," he said.
Disney's own movies have taken in more than $8 billion at the
world-wide box office so far this year, an industry record that
will only grow with the release of "Frozen 2" and "Star Wars: The
Rise of Skywalker" in the coming holiday season.
The opening of a Star Wars-themed area at Disneyland
unexpectedly cut into attendance at domestic theme parks, the
company said, as some potential guests stayed away, worried about
possible overcrowding.
While trade tensions between the U.S. and China haven't
depressed attendance at Shanghai Disneyland, Mr. Iger said the
civil unrest in Hong Kong has hit traffic at its theme park there
-- a drop that will be reflected in the current quarter's
results.
Write to Erich Schwartzel at erich.schwartzel@wsj.com and Maria
Armental at maria.armental@wsj.com
(END) Dow Jones Newswires
August 07, 2019 02:47 ET (06:47 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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