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Disney's Cable Division Q1 Income Hurt By ESPN's High Programming Costs

Disney's Q1 revenue rose 9% to $13.391B, while operating income for its cable group was down 2% to $1.255B and the company "partly attributed the decline to higher programming and production costs at ESPN," according to Daniel Miller of the L.A. TIMES. Disney's consumer-products division "drove the company to a 19% increase in net income" for Q1. The company posted net income of $2.182B for the quarter that ended Dec. 27, up from $1.84B a year earlier (L.A. TIMES, 2/4). Disney CFO Jay Rasulo said while new NFL and college sports contracts "adversely affect costs in the short term, we remain confident in our ability to continue to grow" ESPN in the long-term (WALL STREET JOURNAL, 2/4). In N.Y., Brooks Barnes notes the cable division's decline, "while modest, is likely to feed investor concern about higher sports programming costs." It "was the third quarter in a row that more expensive contracts" -- this time with the NFL -- "dented ESPN’s financial results." ESPN also experienced "higher administrative costs in the quarter and lower ad revenue" (N.Y. TIMES, 2/4). Disney Chair & CEO Bob Iger addressed the rising costs of sports programming, saying, "This is a new contract with the NFL, so the rights fee that ESPN paid the NFL in the first quarter was substantially higher than it was a year ago. We’ll have some extra program costs for ESPN in the quarter that we’re currently in from the college football championship. Then the next big deal to kick in for ESPN will be in a few years with the impact of the new NBA deal. But if you look at the back half of the year, fiscal 2015, the program costs for ESPN will not be substantially greater than they were a year ago. After the NBA deal kicks in, then the rights fees for ESPN will start to flatten out a bit" ("Closing Bell," CNBC, 2/3). At presstime, shares of Disney were trading at $101.57, up 7.94% from the close of business yesterday (THE DAILY).

NO ESPN OTT ON THE HORIZON: MULTICHANNEL NEWS' Mike Farrell reported Iger yesterday "squashed any hope of a standalone ESPN over the top product for the near-term, but left the door wide open for going directly to consumer with a wide array of the media giant's content in the future." ESPN is among the channels available on Dish Network’s Sling TV OTT product, and Iger said that the company "believes targeting broadband-only consumers with that offering is a worthy attempt to get younger consumers who may not have been so inclined to sign up for pay TV." Iger: "There is definitely an opportunity not just for ESPN but for other Disney brands to ultimately put a product in the marketplace that reach consumers directly. We think we have that opportunity with a Disney-branded service" (MULTICHANNEL.com, 2/3).

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