'Musical' sounds good to Disney

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Disney is a world-class brand, so its products ought to say "Disney" on them. That concept has been the heart of Robert Iger's strategy since he took over as president and CEO two years ago. One franchise alone, "High School Musical," has contributed $100 million in income in Disney's fiscal 2006 and 2007. "HSM," along with DVD sales of "Desperate Housewives," "Grey's Anatomy" and "Lost," helped Disney's media networks business lead all others with an 18.7% rise in operating income. Plus, "HSM" and "Cars" helped drive 13.8% growth at the consumer products division. In terms of assets, Disney sold ABC Radio, its stake in E! Entertainment and Us Weekly this year and purchased Club Penguin for $700 million.

Summary and outlook: Like most of its peers, Disney saw its shares drift lower this year, with the stock closing Wednesday at $32.82, down 3.2% year-to-date. The company's studio entertainment -- despite sizzling hot music sales from "HSM" and "Hannah Montana" -- reported lower revenue for the first three quarters, ahead of the company's strong holiday season. But the operating profit for the unit was nearly on par with the same period in 2006. Disney hopes to score big next year with "The Chronicles of Narnia: Prince Caspian," "Wall-E" and "Bolt." Dragging Disney down a bit will be capital expenditures, which could increase up to $350 million as Disney spends money to enhance its California Adventure theme park and boost the company's digital capabilities.

THR rating: $$$$ out of 5

Top performers:

Films: Pirates of the Caribbean: At World's End, Ratatouille, Wild Hogs
DVDs: Pirates of the Caribbean: At World's End, Ratatouille, Peter Pan
TV shows: Dancing with the Stars, Grey's Anatomy, Desperate Housewives

Rankings: Boxoffice by U.S. gross through Dec. 18; DVDs by total units; TV by total viewers for 2006-07 season


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