Disney results miss as Fox studio business underwhelm

NEW YORK (AP) — Disney is feeling some pain from its biggest transformation in decades as its acquisition of Fox’s entertainment businesses contributed to a 39% drop in earnings.

CEO Bob Iger said one of the biggest issues affecting earnings was underperformance at the Fox movie and TV studio. Tuesday’s results, the first complete quarter with Fox’s businesses included, missed Wall Street’s expectations. Disney’s shares fell 3% in aftermarket trading.

The Fox studio was “well below where we hoped it would be when we made the acquisition,” Iger said during a conference call with analysts.

Particularly underperforming was “Dark Phoenix,” a Fox X-Men movie that failed to find its audience. That offset box office successes such as “Avengers: Endgame.”

Disney completed its $71 billion acquisition of Fox’s entertainment business in March, putting “Cinderella,” “The Simpsons,” “Star Wars,” and “Dr. Strange” under one corporate roof. The deal paved the ways for Disney to boost its streaming ventures, with the addition of Fox videos. In May, Disney also gained full control of Hulu  after Comcast sold its stake in the streaming service.

Iger said it would be two years before Disney can have an impact on the Fox films in production.

“We’re all confident that we’re going to be able to turn around the fortunes of Fox live action and you’ll see those results in a couple of years,” he said.

Disney also spent more money on its ESPN Plus and upcoming Disney Plus streaming services. And its results were hurt by taking control of Hulu, including a $123 million charge as it lowered its estimated valuation of the service.

Disney said Tuesday that it will offer its three streaming services in a package for $13. Hulu now costs $6, and ESPN Plus costs $5. The upcoming Disney Plus service will cost $7. So the package will represent a $5 savings. Disney is making the package available Nov. 12, the same day Disney Plus is launching.

Disney is turning to its own streaming services to compete with Netflix as people drop traditional cable services, and Disney loses revenue from its ESPN and traditional channels.

Iger said Disney Plus won’t have as much video as rivals such as Netflix might have, but it will have quality, including launching with eight “Star Wars” movies, 18 Pixar movies, 70 Disney animated movies, 240 Disney live action movies and 7,500 episodes of Disney TV. The service will launch with four Marvel movies, with eight more to come during its first year.

For the fiscal third quarter, which ended June 29, net income fell to $1.76 billion, from $2.92 billion last year. Excluding one-time items, income totaled $1.35 per share. Earnings from continuing operations fell to $1.44 billion, or 79 cents per share. Analysts surveyed by FactSet expected net income of $1.72 per share.

Revenue rose 33% to $20.2 billion from $15.2 billion, short of the revenue of $21.4 billion analysts expected.