Walt Disney Co is developing an Internet subscription service and may consider trimming studio output, executives said on Tuesday after the division posted a 97 percent decline in operating income.

On a conference call, Disney chief executive officer Bob Iger blamed the disappointing performance on a spate of underperforming DVD and movie releases in the second quarter from Bolt to Beverly Hills Chihuahua.

Iger said the company would continue to monitor the amount of films it makes, after scaling back just a few years ago.

While we don't have specific plans, it's possible we'll continue to look at reducing the total output of the studio, Iger said, adding that Disney also will examine production and marketing costs.

Tom Staggs, Disney chief financial officer, expects difficult comparisons for the studio again in the third quarter, because of a less-favorable release slate in home video and television distribution.

Studio revenues fell 21 percent to $1.4 billion primarily due to decreases of $225 million in worldwide home entertainment, $50 million in domestic theatrical distribution and $34 million in music distribution.

Operating income at the studio fell 97 percent or $364 million to $13 million, largely due to decreases in domestic home entertainment and worldwide theatrical distribution.

In July 2006, Disney said it would produce and distribute about 10 Disney live-action and animated films a year and two to three Touchstone films a year, from 14 to 18 films evenly divided between its Disney and its mature Touchstone label.

Disney said on Tuesday it will continue to reposition itself for a changing marketplace as industrywide DVD sales slump and as more and more consumers look online for content, even though a clear business model for online distribution has not yet emerged.

We realize that monetizing at a rate that is as robust as the traditional platforms doesn't exist yet, but we believe... that eventually it will, Iger said.

He said on Tuesday the company was developing a subscription service of Disney-branded content.

We are looking to create a real blend in terms of how we monetize and how we reach consumers and what kind of product we make available, he said.

Disney last week announced it would buy a 30 percent stake in Hulu.com, bringing popular TV shows such as Lost and Grey's Anatomy to the video Web site founded by General Electric's NBC Universal and News Corp.

Disney became the third major U.S. broadcast network to take a stake in Hulu, which has emerged as one of the most popular online video destinations since its launch in 2007 but still lags Google Inc's YouTube.

YouTube, once the scourge of the entertainment industry as a destination for unauthorized content, has recently made inroads with Hollywood, last month announcing a deal to post Sony Corp films and TV shows.

YouTube also has a partnership with Disney to get shortform excerpts of content from ABC and ESPN. Iger on Tuesday said he did not rule out putting longer content on Youtube.

The possibility of our long form content ending up on Youtube platform still exists, he said.

We feel pretty, pretty confidently that if we don't put our product out online in a well-timed and well-priced basis, it will still ... be demanded by consumers.

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