Disney Sees Profit From Internet by Year-End

LOS ANGELES – Entertainment giant Walt Disney Co. expects its scaled-back Internet operations to be profitable by the end of the fiscal year and plans to close 50 more of its Disney Stores, Chairman and Chief Executive Michael Eisner said on Thursday.

In a letter to shareholders, Eisner said Disney, owner of theme parks, a movie studio and the ABC and ESPN television networks, has completed the closure of 51 underperforming stores -- a process that stretched over several years -- and plans to close 50 more. The company aims to stabilize the number of North American stores at between 300 and 400.

The recession has hurt attendance at Disney's theme parks and has also hurt advertising rates for its broadcast businesses, Eisner said in the letter, part of Disney's 2001 annual report that is being mailed to shareholders.

During 2001, Disney cut about 4,000 jobs and launched a new purchasing program designed to save at least $200 million annually beginning this year, he said. The company also has cut its annual investment in live-action films by $600 million.

``We are now officially in a recession and people have less disposable income for travel,'' Eisner said. ``However, when the economy does come back, and as confidence in America's safety continues to grow, there is every reason to believe that the performance at our parks will be stronger than ever.''

He said the drop in ratings at its flagship ABC TV network had exacerbated the slide in ad rates seen by the industry. He said Disney is focused on developing TV shows that will propel the network back to the top spot it held in 2000.

Eisner said Disney had cut back its Internet operations to core initiatives and expects to achieve profitability by the end of the current fiscal year in September.

Last year, Disney cut jobs from its now defunct Go.com Internet portal and drastically curtailed operations at its Disney Internet Group, aligning Web sites with existing business divisions.

Eisner said Disney sees some of its greatest growth opportunities outside the United States and expects its overall international TV business to be profitable by 2003.

Disney's international expansion is occurring on three fronts: creation and acquisition of new businesses, growth of existing businesses, and increasing operational efficiencies, including cutting costs.

Eisner said Disney can still make better use of its brand strength, increasing penetration in overseas markets.

The company will expand its Disney Mobile program for wireless telephones, set up in Japan in 2000, to Taiwan, Hong Kong, Korea, England, Austria and Germany in 2002, Eisner said. In Japan, NTT DoCoMo Inc. wireless subscribers pay between $1 and $3 a month for a range of Disney offerings on their phones.

He said the company expects royalties from Oriental Land Co., the operator of Tokyo Disneyland and Tokyo DisneySea, to increase 80 percent because of the recently opened Tokyo DisneySea theme park and its two Disney-themed hotels.

In the United States, Disney sees great growth potential in the Interactive game business, Eisner said.

He expressed disappointment with Disney's stock price performance but said he does not manage the company on a short-term basis. Disney's stock fell about 28 percent last year.