NEW YORK ( TheStreet) -- Walt Disney (DIS - Get Report)  is proving that the blockbuster strategy works.

In an age of innumerable choices for entertainment amid a plethora of digital platforms, Disney stays true to its strategy of making big event films based on pre-awareness characters and stories, and then selling products and theme park holidays around those same brands.

For a company as large as Disney, only its media groups, ESPN and ABC, exist outside of that business model. And yet, ABC remains profitable and ESPN remains a juggernaut despite the occasionally outsized quarter of programming costs tied to expensive sports league broadcasting rights.

Disney on Tuesday posted better-than-expected earnings and revenue for the fourth quarter, propelled by a jump in consumer products sales related to its blockbuster movie Frozen. Shares were surging 5.6% to $99.35 on Wednesday

"Disney's blow-out quarter provided the perfect encapsulation of why we think investors should own Disney shares, and not much else in U.S. media," said Bernstein Research analyst Todd Juenger in a research note published  Feb. 4. "Disney's core revenue drivers are attached to underlying IP that is advantaged in both the current state of the video entertainment market, and most conceivable future states as well."

The entertainment giant reported a 22% jump in revenue from its consumer products division, propelled by holiday gifts based on the 2013 filmRevenue for the quarter jumped 8.8% to $13.4 billion, exceeding estimates calling for $12.9 billion while net income also climbed 22% to $2.18 billion, or $1.27 a share. Estimates called for $1.07 a share.

Disney's consumer products group reported a 46% gain in operating income as well as a 20% increase in profits at its theme park. Shares were surging 4.5% in after-hours trading after closing the day at $94.10.

If there was one blemish on an otherwise stellar earnings report it was the high cost of programming at ESPN, which reported a 2% decline in operating income at its cable-TV networks. It's the second straight quarter in which profits were dragged down by programming costs at ESPN, principally for National Football league games and its new network for Southeastern Conference college football games. 

Revenue at Disney's media group, which includes ESPN and the ABC network, jumped 11% in the quarter to $5.86 billion. Looking at current quarter, CEO Robert Iger said in a conference call with Wall Street analysts, said advertising sales at ESPN were "pacing up 18%" in large part due to the first-ever college football championship game held on Jan. 12.

Compared to media companies such as Viacom (VIAB - Get Report) and Discovery Networks (DISCA - Get Report) , Disney's exposure to the general decline in advertising revenue is largely shielded by its movie, consumer products and theme park businesses. Revenue at Disney's broadcasting group accounts for just 12% of revenue and 16% of operating income.

Nonetheless, costs at ESPN are likely to be a constant question from investors wondering whether a stock that has gained 30% over the past 12 months, has more to gain. 

Finance Chief Jay Rasulo addressed the topic of ESPN's programming costs, countering that apart from the current year, in which costs are higher because of new NFL and college football deals, and then in 2017, when a new National Basketball Association contract kicks in, programming costs would generally not be an oversized issue.  

"There are only a couple of bumps left to ESPN cost base," Rasulo said. "We don't run ESPN on a margin basis."

Disney is also not preparing to offer any of its networks as standalone Internet offerings along the lines of what Time Warner is preparing to launch later this year with HBO or CBS with its Showtime Networks. Disney is partnering with Dish on its new SlingTV service, an arrangement, Iger said, is a "worthy attempt to convince young people to sign up for cable when they might have waited."

Nonetheless, Iger made clear that Disney isn't going to do anything that would jeopardize the cable-TV bundle, of which ESPN is the most expensive channel to carry.

"If we were to do that now, it would be precipitous of us, and we don't see a reason to do that," Iger said.

 

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