Disney Chair & CEO Bob Iger yesterday tried to "counter the arguments that ESPN’s business is in decline" following Disney's Q1 earnings report, claiming the cable net has "experienced an uptick in subscriber numbers in the past couple of months," according to Ben Fritz of the WALL STREET JOURNAL. Iger said, "The notion that the bundle is experiencing its demise or that ESPN is cratering in any way from a sub(scriber) perspective is just ridiculous." Fritz notes despite the recent growth, ESPN "lost subscribers in the quarter ended Jan. 2 at the same time that programming costs rose, due to costly deals for the rights to sports such as professional and college football." ESPN's costs also "rose thanks to the timing" of the CFP, which "occurred in the company's fiscal first quarter, ended Jan. 2 this year, but were in the fiscal second quarter a year earlier." Operating income for Disney's TV business "fell 6% in the quarter" to $1.41B, while revenue rose 8% to $6.33B. ESPN ad revenue "grew a robust 25% in the quarter." Disney CFO Christine McCarthy said that the growth rate "would have been 14%, excluding the timing" of the CFP and the absence this year of NASCAR. Iger said that much of the recent "modest uptick in ESPN subscribers came from so-called skinny packages that have fewer channels and are aimed at cost-conscious young consumers." He said that the company is "pushing aggressively to include ESPN and its other channels in similar offerings." However, Iger said that he "wasn't ready to predict that the recent positive trend in subscriber numbers would continue." Meanwhile, the earnings report came out the same day that ESPN and DraftKings announced they have ended their "exclusive advertising relationship" at DraftKings' behest (WALL STREET JOURNAL, 2/10).
INTEREST IN ESPN IS CLEAR: Iger said about 200 million Americans "consume ESPN on one platform or another" in any given month. He added that of the 95% of Americans who "watch sports in a given month, over 80% watch ESPN." Iger: "There's clearly an interest in ESPN, and that interest propelled some growth." He added the addition of some "light cable packages that had ESPN in those packages also probably helped." He said, "What we're seeing with Dish and the Sling package that they launched is they’re bringing some folks back who had cut the cord. They’re also bringing young people into the bundle, and ESPN is part of that. One of the reasons they’re seeing success with their light bundle is because ESPN is part of that." Iger noted the "prediction that there would be a rapid demise of the bundle is way too exaggerated" ("Closing Bell," CNBC, 2/9). He added, "We fully expect our media networks, including ESPN to continue to deliver bottom-line growth, which means ad revenue growth will continue to outpace spending" (REUTERS, 2/9). Edward Jones analyst Robin Diedrich, who has a "buy" rating on Disney stock, said that Iger's ESPN comments "helped stanch the bleeding." The AP's Ryan Nakashima noted that is in part "because its other segments from movies to theme parks are booming." Diedrich said, "Even considering some of the risk and slowdown we are seeing in media, we look at this as a really good buying opportunity" (AP, 2/9).
THE FORCE WAS WITH THEM: In N.Y., Richard Morgan wrote the ESPN news "ruined" Disney's party for its successful "Star Wars: The Force Awakens" in December that helped it "beat Wall Street profit and revenue expectations." Total revenue and operating income for the company increased 14% and 20% -- to $15.2B and $4.3B, respectively -- as the film propelled the company to record quarterly profits (N.Y. POST, 2/10).
