• by Wayne Friedman , July 30, 2009

Just like other media companies, Walt Disney has felt the effect of a weak economy, with lower net income and revenues in virtually all of its businesses for third-quarter fiscal results.

Net income sank 26% to $954 million, while revenues fell 7% to $8.6 billion. Businesses such as media networks, theme parks, studio entertainment, interactive and consumer products all took hits in revenue and net income.

Lower advertising revenue hit Disney's cable networks, specifically from its big ESPN network. Cable networks' operating income fell 8% to $1.1 billion for the quarter ending June 27. ESPN also incurred higher annual programming costs, while revenues slipped 1% to $2.6 billion. The company said the decrease in advertising revenue was the result of fewer commercial units sold, which was partially offset by higher rates.

But company officials don't see any cause for alarm going forward. "The [sports ad] market is relatively stable. We haven't noticed dramatic change concerning [advertising] categories," says Tom Staggs, senior executive vice president and CFO for Walt Disney Co.

Things weren't any better at its broadcasting operations -- ABC network and its owned stations. Revenue fell 4% to $1.4 billion, with operating income falling 34% to $204 million. As with its cable networks, lower advertising sales were one major reason that ABC Television Network had less revenue from decreases in news, daytime and prime-time dayparts. Declining results in prime time were due to lower ratings.

The ABC TV Network's advertising revenue was down by mid-single-digit percentages during the period, according to company officials. One reason: ABC aired four fewer NBC playoff games in the period versus a year ago.

Concerning the upfront market, Disney's Staggs said: "We are comfortable with the rates we are getting. We anticipate selling less [commercial] inventory in this upfront period, but are well-positioned for the scatter market."

Studio entertainment revenues declined 12% to $1.3 billion, with operating income falling drastically to $12 million from $109 million in the period before. One major reason was lower home entertainment sales across all its library and current releases. Some of this was partially offset by an increase in domestic theatrical distribution, primarily from "UP" and "Hannah Montana: The Movie."

Disney's Parks and Resorts revenues did not hold any good news -- down 9% to $2.8 billion, with operating income falling 19% to $521 million. There were income decreases at the Walt Disney World Resort, Disney Vacation Club and Disneyland Paris.

Consumer Products group revenues were down 10% to $510 million, and segment operating income decreased 37% to $96 million. Interactive media revenues for the quarter lost ground by 20% to $113 million. Losses were cut to $75 million, from $91 million in the period before.

Walt Disney's President and CEO Bob Iger is skeptical about current efforts by major cable operators that want to "authentic" their cable consumers who want to access TV content online. Cable operators would let those consumers access that content for free -- otherwise they would have to pay a fee.

"It could create issues for consumers, which could create more harm than good," he says. Cable operators want to create separate online businesses -- operators who might carry Disney networks such as ABC TV Network, and ESPN, for example. Iger believes if this happens Disney should get a piece of this from the cable operator -- it shouldn't be just a free add-on for consumers. "Our product is extremely valuable. If we are offering it on another platform, I believe that's more value to the consumer, and we should get paid for that."