Disney quarterly profit falls short as streaming costs rise

(Reuters) - Walt Disney Co DIS.N missed Wall Street profit targets as new technology costs rose during the quarter ended June 30, but Chief Executive Bob Iger said an exodus of consumers from its television channels was slowing.

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Shares of Disney, which have climbed nearly 9 percent so far this year, slipped 1.1 percent in after-hours trading on Tuesday to $115.45.

Disney is trying to transform itself into a broad-based digital entertainment company as ESPN and its other networks lose viewers to Netflix Inc NFLX.O and other streaming options. It is on the verge of gaining new film, television and international properties in a $71 billion purchase of assets from Twenty-First Century Fox Inc FOXA.O.

Iger, on a post-earnings webcast, said growth of smaller channel bundles delivered online had helped make up for customers dumping larger cable packages. Disney has seen “noticeable improvement in the rate of (subscriber) loss in each of the last four quarters,” he said.

The company plans to launch its own streaming service for family entertainment in late 2019. The service will not, however, carry the volume of content found on Netflix, Iger added.

The cost to build streaming services contributed to a profit decline at Disney’s media networks, the company’s largest unit, in the quarter. Operating income at the division dropped 1 percent to $1.8 billion, the company said.

Subscription growth for ESPN+, a pay streaming service launched in April, is “exceeding our expectations,” Iger said.

Overall, Disney posted earnings of $1.87 per share excluding certain items, an increase from a year earlier, but below Wall Street’s average forecast of $1.95, according to Thomson Reuters I/B/E/S.

Disney’s movie studio enjoyed blockbuster success with “Avengers: Infinity War” and “The Incredibles 2.” Operating income at the studio rose 11 percent to $708 million, but it also recorded a $100 million film impairment charge, primarily related to work on two animated films it decided not to release.

The company’s theme parks division reported a 15-percent rise in profit to $1.3 billion with increases at domestic and international resorts.

In consumer products, operating income declined 10 percent to $324 million.

Net income attributable to Disney rose to $2.92 billion, or $1.95 per share, in the quarter, compared with $2.37 billion, or $1.51 per share, a year ago.

Total revenue rose 7 percent to $15.23 billion, but missed analysts’ average forecast of $15.34 billion.

Reporting by Vibhuti Sharma in Bengaluru and Lisa Richwine in Los Angeles; editing by Arun Koyyur, Bill Rigby and G Crosse