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Disney's Q2 Income Up Despite ESPN's Increased Programming, Production Costs

Disney today reported that its domestic theme parks and consumer products business "drove the company to a 10% increase in net income for its fiscal second quarter," according to Daniel Miller of the L.A. TIMES. The company "posted net income" of $2.108B for the quarter that ended March 28, up from $1.917B a year earlier. The company's "largest unit, its media networks division, posted operating income" of $2.101B -- "down 2% from a year earlier." Revenue "rose 13%" to $5.81B. The cable group's operating income "was down 9%" to $1.799B. Disney partly attributed the decline "to increased programming and production costs" at ESPN. Disney said this was due to "higher rights costs for college football programming and the addition of an NFL wild card playoff game and the SEC Network" (LATIMES.com, 5/5). CNBC's Andrew Ross Sorkin said, "We always say content is king, but here is what’s happening: The decrease at ESPN was driven by higher programming and production costs. It costs more and more to get the rights for these productions and you have to make up on the other end with the subscriber" (“Squawk Box,” CNBC, 5/5). At presstime, shares of Disney were trading at $111.86, up 0.8% from the close of business yesterday (THE DAILY).

THE MAGIC KINGDOM: Disney Chair & CEO Bob Iger appeared on CNBC this morning to discuss the earnings report. Iger: "On the media network side, we had some extra costs at ESPN because of the college football playoffs and the NFL Wild Card. Generally speaking, all of our businesses had a very strong quarter.” Iger said of the Verizon bundle legal dispute, “We’re certainly willing to work with the various distributors to come up with packages that are of value to their consumers and also continue to provide value for us. So I don’t think this is the beginning of an era of litigation between the programmers and the distributors.” Iger said he does not believe the “bundle as we know it is dead, and we don’t see any disturbing trends.” CNBC’s Jim Cramer asked if the company will implement a cap for rights fees. Iger responded, "The next balloon is going to be due to the new NBA deal which kicks in in 2017-2018. But beyond that you’re not going to see the kind of dramatic cost increases that we've seen the last few years. So ESPN costs are going to flatten out. We’re not going to buy everything" ("Squawk on the Street,” CNBC, 5/5).

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