Disney: iTunes movie sales prove potency of format, pricing

Disney's quarterly earnings announcement and subsequent analyst call paint a picture of a company that's on top of its game when it comes to taking advantage of both the Internet and digital media. First, the numbers: Disney earned $931 million during the first quarter of 2007 (the second quarter of its fiscal year) on revenues of $8.07 billion. Profits were up from $733 million during the first quarter of 2006 even though revenues rose only $40 million dollars in the same period. Disney said that the figures reflected "strong operating results across all segments."

One of those segments is digital video sales. Disney was famously on board when the iTunes Store added movies for the first time. Since that time, it has kept Apple supplied with a steady stream of content in the form of movies and TV shows while most of the other studios have sat on the sidelines.

Movie sales: why Disney gets it

During its earnings call, Disney CEO Robert Iger said that this was because Mickey and Company were quite pleased with Apple's movie pricing and the margins they were seeing. Although the pricing of a movie on the iTunes store is lower that that of a physical DVD, Disney is making about the same amount of money on each movie it sells there.

"There are cost of goods that are factored out of the iTunes sale, which allows them to sell at a lower price," Iger said during the earnings call. "That's their decision and it allows us to take revenue out that is equal to, in terms of a per-click sale, store sales."

That's the piece that the other major studios that have feared when it comes to Apple's movie prices—$12.99 or $14.99 for new films and $9.99 for older content—on the iTunes Store. As a result, most of them have eschewed the iTunes Store in favor of Wal-Mart's recently launched download store. Even though Wal-Mart's digital reach falls far short of Apple's (and its movies won't play on iPods or Macs, natch), the studios were comforted by Wal-Mart's DVD-style pricing for downloads: new releases will cost up to $19.98 each with the rest of the catalog is priced somewhere between that figure and $9.99.

Of course, Wal-Mart has one thing in common with most of the studios: they all share an interest in shoring up traditional DVD sales. The studios fear a price war between DVD and movie downloads will take a bite out of their margins, while Wal-Mart is concerned about losing DVD sales to an online vendor. Disney is virtually alone among the major studios in realizing that sales are the important thing and that there's significant money to be made on digital downloads if you can offer compelling value to the customer.

Iger also revealed during the call that sales of Disney movies on iTunes have passed the 2 million mark while TV shows have shot past. Top-selling titles include Cars and Pirates of the Caribbean, while back-catalog titles have been selling at a much slower clip. Sales of Disney TV shows have topped the 23 million mark altogether since they were added to the iTunes Store.

Disney's online strategy is going great guns as well: the company recently redesigned its web site and overhauled its web strategy and, as a result, is raking in the cheese. Disney sees over 100 million videos per week streamed to 6 million unique broadband visitors per month, and page views are up 10 percent since the redesign of Disney.com. Despite his feeling that the strength of Disney.com is enough for the company to go it alone, Iger believes that not hooking up with other content-distribution partners would be short-sighted: "We're looking for deals that allow us the flexibility to go directly to the consumer as well as through a third party," said Iger. "We're not entering into any exclusive deals."

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