According to a report by the Digital Entertainment Group, the U.S. home entertainment market grew 2.5% a year ago to $4.5 billion during the first quarter last year. The home entertainment market includes purchases, subscriptions, and rentals of DVDs, Blu-ray discs and online content. For the 12-month period, sales for the market were down 2.1% to $18 billion. But the quarter was the second consecutive quarter of growth, suggesting a recovery on the way. Twenty-three percent growth in sales of Blu-ray discs was offset by the continued decline in DVD sales. Overall, sales of both Blu-ray and DVD packages fell 0.6% over the year to $2.1 billion. The biggest growth was seen in revenues from online subscriptions for services such as Netflix and Hulu, which reported a fivefold increase to $548.6 million. Entertainment giant The Walt Disney Company is also rapidly adapting to digital trends.
Walt Disney’s (NYSE:DIS) Q3 revenues grew 5% over the year to $11.34 billion, ahead of the Street’s target of $11.24 billion. EPS for the quarter of $0.79 was also ahead of the market’s projections of $0.77.
Revenue growth was dominated by the strong performance of their parks and resorts and the media networks segment. For the quarter, revenues from media networks grew 7% to $5.10 billion. Revenues from parks and resorts also grew 7% to $3.39 billion. The 4% growth in domestic resort reservations and higher booking rates for the quarter ensured that increased revenues improved earnings as well. The quarter’s revenues from the consumer products segment grew 7% to $1.01 billion, and interactive media revenues grew 4% to $0.29 billion. The studio entertainment segment was the only segment to register a decline of 5% over the year to $1.55 billion.
In October, Disney announced the $4.05 billion acquisition of George Lucas’s Lucasfilm, after nearly a year and a half of discussions. Through the addition, Disney is now the owner of the Star Wars franchise as well as visual effects and sound design organizations Industrial Light & Magic and Skywalker Sound. Disney plans to leverage the addition by releasing more Star Wars films, a new one every two to three years. They are already working on their first, Star Wars VII, which is scheduled to be released in 2015. Besides releasing original Star Wars movies, Disney is also said to be working on spin-off movies that will feature members of the Star Wars cast, such as Han Solo and Boba Fett.
As part of their international expansion plans, Disney also acquired the German cable channel, Das Vierte, in September 2012. Das Vierte operates as a free TV channel in the region. It does not have a big following and commands only 0.2% TV market share as of last year. But Disney plans to build the channel to expand their already strong presence in the market. Disney already had a 50% stake in the leading kids channel Super RTL in Germany and a 31.5% stake in the free-to-air channel RTL II. They are also operating pay TV channels in Germany. With the acquisition, Das Vierte will be the first free-to-air channel held entirely by Disney.
Disney’s Digital Content Growth
To expand within the high-growth online subscriptions market, Disney expanded their content contract with Netflix. Last year, Disney entered into a multi-year licensing agreement with Netflix that will enable Netflix to stream Disney movies soon after they are out of theaters. The terms of the deal were not disclosed, but analysts estimate that Netflix will pay Disney nearly $350 million annually as part of the contract.
In addition, they strengthened their ownership in Hulu by buying the 10% stake being sold by Providence Equity Partners in the online streaming company. Disney, along with News Corp, NBC, and Comcast, was already invested in Hulu. These investors agreed to increase their respective holdings by buying out Providence’s 10% stake at $200 million.
Disney’s stock is trading near 52-week highs at $55.68, with a market capitalization of $98.58 billion.