Disney net income off 77% Internet business is biggest culprit

ANAHEIM, Calif. The Walt Disney Co. reported sharply lower netearnings Tuesday because of losses at its Internet group and anaccounting charge. Without those factors, earnings beat expectationsas higher results from movies and theme parks offset an ad slowdownat ABC.

Disney reported net income of $63 million for the three monthsending Dec. 31, down 77 percent from $278 million in the same perioda year ago. Much of the decline was caused by a loss of $253 millionin its Internet businesses and a $228 million accounting charge tocomply with rules on valuing film holdings.

Excluding those charges, Disney reported income of $594 million onrevenues of $7.31 billion, not including its retained interest in theWalt Disney Internet Group, compared with income of $469 million theprevious year on revenues of $6.82 billion.

Income including losses from the Internet division rose to $341million, or 16 cents per share, compared with $278 million, or 13cents per share.

Analysts surveyed by First Call/Thomson Financial had estimatedearnings of 15 cents per share, and Disney's stock, a component ofthe Dow Jones industrial average, was up $1.18, or 3.9 percent, to$31.61 on the New York Stock Exchange.

Steven Bornstein, chairman of the Walt Disney Internet Group, toldanalysts at a conference that his division would become profitablewithin 18 months now that it has closed its money-draining Go.com Webportal.

Bornstein said new broadband initiatives, including"MySportsCenter" from Disney's ESPN cable channel and pay-per-playonline games, to be introduced later this year, would use existingbrands to generate revenue.

Income from Disney's media networks division, which includes ABCand cable channels such as ESPN and A&E, reported income of $590million, down 8 percent from last year. The company blamed asoftening advertising market, lower ratings and higher programmingcosts.

Disney's Internet division lost a total of $352 million in thequarter, compared with a loss of $265 million in the previous year.

After months of mounting losses, Disney announced last month itwould discontinue the tracking stock for its Internet arm and foldthe division back into the company.

Revenues from Disney's parks and resorts division rose 9 percentto $1.7 billion while income rose 6 percent to $385 million.

On Thursday, Disney will open its latest theme park, Disney'sCalifornia Adventure, on 55 acres next to Disneyland.

Revenues from movies increased 15 percent to $1.9 billion. Incomefrom theatrical releases and sales of movies on VHS and DVD increasedto $152 million, compared with a loss of $45 million the previousyear.

Disney's consumer products division, which includes the strugglingDisney Stores, continues to generate losses. Revenues decreased 6percent to $828 million and income fell 13 percent to $177 million.

Last year, Disney announced a redesign of its Disney stores andsaid it would close older stores as their leases came due.