Disney on Thursday afternoon reported a Q4 profit of $1.77B, "up 10% from a year earlier, but failed to deliver on analysts’ expectations," according to Daniel Miller of the L.A. TIMES. There were "several weak spots for the company during the quarter," with "notable declines in box office sales, and advertising and affiliate fee revenue at ESPN." Disney Chair & CEO Bob Iger on a conference call with analysts "described his 'bullish' perspective on ESPN." Disney's "closely watched media networks group, which includes crown jewel ESPN, also had a difficult quarter." The group "posted operating income" of $1.67B, down 8%. Revenue fell 3% to $5.66B. The cable division, which houses ESPN, "recorded operating income" of $1.45B, "down 13% from a year earlier." Disney "attributed the operating income decline at the cable division partly to lower advertising and affiliate revenue at ESPN, in addition to higher programming and production costs." Disney Senior Exec VP & CFO Christine McCarthy said that ad revenue at ESPN was "down 13% in the quarter, hurt in part by a 'significant decrease' in advertising for daily fantasy sports leagues" (L.A. TIMES, 11/11). At presstime, shares of Disney were trading at $96.95, up 2.10% from the close of business Thursday (THE DAILY).
ACCENTUATE THE POSITIVE: Iger said, “Our outlook for ESPN is very positive ... (because) you’re looking at a category -- live television sports -- that’s generally very healthy. It adapts very well to mobile platforms and that’s where we’re moving ESPN. We feel really good about ESPN. We’re dealing with some near-term issues on the sub side. Eyes wide open on that, not trying to hide anything. But we think long-term prospects for ESPN are just fine" ("Closing Bell," CNBC, 11/10).
NEXT STEPS: The WALL STREET JOURNAL's Erich Schwartzel in an above-the-fold business section piece writes under the header, "Decline At ESPN Takes A Toll On Disney." ESPN's streaming deals with Hulu and AT&T/DirecTV "could help the company attract elusive millennial customers who are opting out of traditional cable packages." Iger said, "We believe these new services will ultimately move more millennials into the pay-TV universe.” Nielsen last week said that ESPN "lost 621,000 subscribers in the span of a month, a number ESPN has disputed." Iger called for Nielsen to "scrutinize its methodology and start measuring subscribers to online cable-TV players like Sling TV." Without getting specific, Iger said that BAMTech and other services "could help Disney ramp up direct-to-consumer offerings" (WALL STREET JOURNAL, 11/11). Stifel Nicolaus Managing Dir Benjamin Mogil said there are “challenges around ESPN,” especially with a declining subscriber base. Mogil said his firm sees ESPN's subscription levels "probably not going positive, but actually getting less negative” (“Squawk Box,” CNBC, 11/11).
