A $313m operating deficit at Walt Disney's film studio was the main cause of a 26 per cent drop in net income for the fourth quarter, the entertainment group said on Thursday.

Although the dip to $379m from $516m in the same period last year translated into earnings per share of 19 cents, compared with 25 cents last time, the results still topped Wall Street's predictions.

The expected slump at the studio was the result of several factors, including a poor performance by the Miramax subsidiary, lower sales of DVDs for home viewing and write-downs on several Disney films. Robert Iger, the new chief executive, and Tom Staggs, chief financial officer, said that while investment at Miramax would be curtailed and all production budgets would be subject to rigorous scrutiny, Disney would be investing heavily in animation.

With the animated feature Chicken Little performing strongly at the box office, Mr Iger said nothing was more important than animation and that it was his “priority to get it right”.

Tom Staggs, chief financial officer, said he expected the impact of this year’s difficulties in the film division to carry over into the early part of next year when this season’s films were released on DVD. In response to this year’s difficulties in the DVD market, Mr Iger said he was considering reducing the number of productions Disney releases in the format.

Media networks, including the ESPN cable sports services and the revived ABC broadcast business, continued to drive the group's profit growth in the quarter.

The division’s operating income soared 41 per cent to $632m on revenues of $3.35bn, up 16 per cent from $2.9bn in the same period last year.

Broadcasting reported operating profits of $48m compared with a loss of $75m, reflecting the continuing success of programmes such as Lost and Desperate Housewives.

Operating earnings at theme parks and resorts rose 10 per cent to $309m on revenues up 9 per cent at $2.4bn.

Consumer products, the smallest division, which is investing in the video game business, reported a 10 per cent profits slide to $132m, attributed to the sale of the Disney Store chain and product development costs at Buena Vista Games.

Mr Staggs said the company planned to double its investment in games next year to $100m.

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