Disney game arm posts $45 million operating loss

House of Mouse returns dismal holiday-quarter performance as Interactive Media business sees increased revenue overtaken by development and marketing costs.

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For the first time, media giant the Walt Disney Company reported specific results for its Interactive Media Group. The unit comprises Disney Online, Disney-branded mobile-phone initiatives, and its video game-making arm, Disney Interactive Studios.

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The new segment returned mixed results for the company. The Interactive Media Group posted growing revenues of $313 million for the quarter, up 13 percent from the division's adjusted haul from the previous year. Those returns were tempered by a substantial falloff in IMG's operating income, which fell from a $58 million gain last year to a $45 million loss during the October-December period. Disney did not report net income--or losses--for the sector.

Disney attributed IMG's loss to sales lagging behind higher production costs and increased marketing expenses. Last week, Disney confirmed for GameSpot that it had begun layoffs at Propaganda Studios, creator of last year's tepidly received Turok, as well as its Nintendo-focused outfits Avalanche Software and Fall Line Studios.

Like its game division, the Mouse House's overall earnings were not immune to the deepening global financial crisis. For the quarter ended December 27, 2008, Disney said that total revenue slumped to $9.59 billion, down 8 percent from last year's $10.45 billion haul. More alarmingly, net income was substantially off, dropping 32 percent to $845 million year-on-year. Operating income saw an equally precipitous decline, falling 36 percent to $1.44 billion.

Although Disney's two most lucrative segments--Media Networks and Parks & Resorts--were both in the red during the October-December quarter, the entertainment company saw its biggest declines in its Studio Entertainment division. Ironically, the film unit was a victim of its success from the previous year, with 2008 holiday DVD sales unable to match Q4 2007 blockbusters Pirates of the Caribbean: At World's End, High School Musical 2, and Jungle Book.

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