Disney Plans a 'Star Wars' TV Show for Its New Streaming Service

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Credit: Troy Harvey/Bloomberg

Walt Disney is going to spend its way out of its problems.

The world's largest entertainment company on Thursday warned that profit in the new fiscal year just underway will be hurt by investments in theme parks, movies and TV shows, including programs for new streaming services set to debut in 2018 and 2019. The good news: The company is already working on a new "Star Wars" film trilogy.

A wicked hurricane season, falling advertising sales and a canceled movie sapped fourth-quarter profit at Disney, the company said, leading to the first drop in annual results since the financial crisis almost a decade ago. The downdraft from bad weather, lower ad sales and a tough year for movies was too powerful even for Disney, which counts on TV, theme parks, consumer products and its famous studio to fuel growth.

CEO Bob Iger warned a year ago that fiscal 2017 would be an "anomaly" and followed up by saying earnings would be "roughly in line" with last year. His forecast was almost spot on.

Fourth-quarter profit at Disney's cable TV unit, the company's single biggest profit contributor, slumped 1.2 percent to $1.24 billion, hurt by weak advertising sales and higher programming costs for baseball and football at ESPN. Affiliate fees rose even as subscribers declined.

In recent quarters, the company's theme-park division came to the rescue with strong earnings, driven by higher ticket prices and guest spending, along with new attractions that boosted attendance. Although profit rose, Hurricane Irma forced Disney to close its four Orlando, Florida, parks for two days and cancel three cruises. Domestic resort profits fell.

Shares of Disney rose 1.3 percent in extended trading, reversing an initial decline. The stock, once a high-flier, is down 1.5 percent this year after a flat 2016, the worst back-to-back years since 2007-2008.

Burbank, California-based Disney faced other headwinds this year, including a light release schedule of just eight films from its movie division, a drop from past years, and the ongoing challenge of finding consumer products to match the bonanzas generated by "Frozen" and "Star Wars: The Force Awakens." The company last quarter took a write-off on an unreleased animated film, "Gigantic."

Disney said Thursday it's already working on a new "Star Wars" trilogy to follow the series that's scheduled to wrap up in December 2019. The company said Rian Johnson, director of the installment that opens next month, is already at work on the project. The company also plans to create a "Star Wars" TV show for its new streaming service.

The first picture in Disney's "Star Wars" revival, "The Force Awakens," cost $245 million to produce and went on to deliver $2.07 billion in box-office sales, according to Box Office Mojo.

For the quarter ended Sept. 30, Disney reported earnings of $1.07 a share, excluding some items, missing the $1.14 average of analysts' estimates. Revenue slipped to $12.8 billion, compared with projections of $13.3 billion. For the year, profit and revenue both slumped 1 percent.

To adapt to shrinking cable-TV audiences, Iger is introducing direct-to-consumer subscription services based on ESPN and the company's rich library of children's programming. But start-up costs, along with the potential loss of sales to third parties such as Netflix, have added to investor worries.

The company reported a $140 million drop in income from investments, citing higher losses at BamTech, its streaming unit, and Hulu, as well as lower earnings from A&E Networks.

That may explain Disney's reported interest in acquiring large parts of 21st Century Fox, including its film studio, some cable channels and stake in consumer TV services such as Sky and Hulu. Iger is due to retire in July 2019, potentially making a deal for the $54 billion Fox a crowning achievement in his long, successful career.

On the call Thursday, executives declined to comment on the Fox reports.

-- Bloomberg News

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