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Disney's Box Office Disaster

Zacks Equity Research

Yet another science-fiction ‘John Carter’ is creating a buzz, but this time wiping out the smiles of the production house, The Walt Disney Company (DIS). Disney is expected to register a loss of $200 million as the company’s big-budget action flick turns out to be the biggest flop in its history, Reuters reported.

The film was reported to have generated a mere $184 million in revenues from world wide ticket sales. However, Disney incurred more than $300 million on production and marketing. This gets even worse as around half of the revenues generated by the film needs to be shared with the distributors and movie chains.

Following the failure of the film, Disney now expects studio division to register an operating loss of $80 million to $120 million in the current quarter.

Studio Entertainment revenue marked a sharp decline of 16% year over year to $1,618 million in the prior quarter, reflecting few Disney branded titles in theatrical release coupled with lower DVD volumes. However, operating income increased 10% to $413 million, reflecting increased worldwide theatrical revenues and lower film cost write-downs, partly offset by decreases in television distribution and worldwide home entertainment results.

Disney has some of the biggest movies slated to be released this year, including the much awaited film - ‘The Avengers’ from Marvel and Pixar's ‘Brave’. According to Disney, these films carry enormous prospects and expect to generate significant amount of revenues for the company.  

Walt Disney is one of the world's leading diversified entertainment companies. Besides, the company commands a formidable portfolio of globally recognized brands, primarily its namesake brand Walt Disney, followed by ABC, ESPN and Marvel Entertainment. These renowned brands offer a strong competitive edge to the company and bolster its well-established position in the market against major players like News Corporation (NWSA) and Time Warner Inc. (TWX).

We maintain a long-term ‘Neutral’ recommendation on the stock. Moreover, Disney currently retains a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating.

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