SBD/August 6, 2014/Finance

Disney Posts Record Q3 Results Despite ESPN's Higher Costs, Lower Subscriber Base

ESPN's MLB telecasts contributed to Disney's increased expenses in Q2
Skyrocketing sports-rights costs "caught up to ESPN last quarter, providing a setback in an otherwise stellar quarter for Walt Disney Co.," according to Ben Fritz of the WALL STREET JOURNAL. Hit by "a combination of higher costs" for MLB and the FIFA World Cup, as well as "a shrinking subscriber base for ESPN and certain timing issues, operating income at Disney's cable networks group fell" 7% to $1.9B during the quarter ended June 28. It was the "only one of the company's business units not to report double-digit, or higher, growth in operating income." Disney CFO Jay Rasulo said that along with higher costs, ESPN's "subscriber losses were 'modest' and 'mostly economically driven,' presumably from people switching to cheaper cable packages or abandoning pay television altogether." Affiliate revenue "grew in the mid-single-digit percentages last quarter, affected by contractual provisions." Such fees are "a key driver of ESPN's business." Comparisons to the same quarter last year "were hurt" by nearly $100M "less in deferred revenue recognition as well as the sale last summer" of ESPN's U.K. business (WALL STREET JOURNAL, 8/6). VARIETY's Marc Graser noted for Disney's TV business "soccer saved the day," in what was the "best quarter in the company’s history." The timing of the World Cup helped ESPN and ABC "post stronger results, with soccer matches in Brazil helping attract record audiences for ESPN during what's typically a slow period for networks during the summer." Disney's media networks, which "typically account for 45% of the company's revenue each year, saw sales increase" 3% to $5.5B, again "primarily from World Cup matches" (VARIETY.com, 8/5). At presstime, shares of Disney were trading at $87.35 per share, up nearly 1% from the close of business yesterday (THE DAILY).
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