Rising costs and declining viewership at ESPN "once again dragged down quarterly results" for Disney, while Chair & CEO Bob Iger on a conference call yesterday "gave his first public signal he may stay beyond his planned retirement" in '18, according to Ben Fritz of the WALL STREET JOURNAL. Despite Iger's "best efforts to focus investor attention on Disney’s film studio," most questions on the call with analysts "once again targeted ESPN’s struggles and the pending launch of a digital, direct-to-consumer sports video offering." Disney’s total revenue fell 3% in the quarter ended Dec. 31 to $14.8B, while profit dropped 14% to $2.5B. The declines were "largely expected." ESPN, whose costs have grown recently due to the start of a new NBA deal, was "entirely to blame for an 11% drop in the company’s cable operating income." Other cable nets in Disney's portfolio "were flat." In response to questions about ESPN, Iger "spoke extensively about work the network is doing" with BAMTech. Iger also noted that ESPN has "gained some subscribers from growth" in skinny bundles. He added that in addition to offerings from Sony, DirecTV, Dish Net. and Hulu, Disney recently "signed another deal it has yet to announce." Sources said that the deal is with YouTube for a "bundle that will include ESPN, ABC and other Disney networks in a service expected to launch later this year" (WALL STREET JOURNAL, 2/8). At presstime, shares of Disney were trading at $110.17, up 1.08% from the close of business yesterday (THE DAILY).
PLAYING DEFENSE: Iger appeared on CNBC’s “Fast Money” yesterday, with CNBC’s Julia Boorstin noting there is “always a big focus on ESPN and it continues to drag on results.” Iger said there is "way too much pessimism about ESPN because ESPN is still in demand from the three constituents you want to be in demand the most from" -- distributors, consumers and advertisers. Iger: "The reason it is in demand is the brand is still strong, the product is still good and we’ve invested nicely to keep that product as high quality as possible. ... What we have talked about is what are the strategies that we are putting into place to contend with what we see in the marketplace. One, I talked about keep your programming strong. The second one is make sure that you are launching on every new over-the-top or more modern digital multi-channel service, because we believe that in many ways is going to occupy a good part of the future. It’s less expensive, it’s easier to use, it’s more mobile friendly. ... That's the trend that we're most focused on.” Iger said a new subscriber on “one of these new platforms in terms of the bottom line is revenue neutral to us, meaning the rates that we're getting from those new services per sub are the same as the rates that we get -- roughly the same -- on the traditional distribution side of the business." He added it is “too early to predict” if or when the company would break ESPN away the cable bundle" ("Fast Money," CNBC, 2/7).
STAYING POSITIVE: MULTICHANNEL NEWS' Mike Farrell wrote Disney has "taken it on the chin as subscribers have fled" from ESPN. But Morgan Stanley media analyst Ben Swinburne estimated that ESPN "could be in for a reprieve from its 2% annual subscriber erosion over the past three years." Swinburne was optimistic ESPN will "continue to grow affiliate fees in the next renewal cycle," beginning in '18, "largely because of new distribution players" (MULTICHANNEL.com, 2/6). Macquarie Group Senior Media Analyst Tim Nollen said, “We’ve maintained perhaps a slightly more constructive view on the future of ESPN than some. It's based really on our opinion that strong content paired with strong distribution potential will win, and ESPN has that with the BAMTech platform that Disney acquired a few months ago. ... It was a slight surprise that the advertising revenue was a bit lower, but they had some timing issues, for example, with (CFP) games falling into the following quarter versus last year. So the number was not great on the topline, but they already did say that ESPN was pacing into positive advertising growth into the current quarter" (“Worldwide Exchange,” CNBC, 2/8). Surevest Wealth Management CEO Robert Luna said of the future of ESPN regarding shifts in consumer habits, “They had this acquisition of BAMTech last year and I think the idea is spinning off some type of standalone option, subscription agreement for ESPN. I'd like to hear a little bit about that" (“Closing Bell,” CNBC, 2/7).
PALACE INTRIGUE: Iger said that he was “open" to the prospect of remaining CEO after his contract ends in June of next year if the Disney BOD "decides that is the best course." Iger: "I am going to do what is in the best interest of this company. While I am confident that my successor is going to be chosen on a timely basis and chosen well, if it is in the best interest of the company for me to extend my term, I am open to that." Edward Jones Senior Analyst Robin Diedrich said that “investors will be pleased” by Iger’s willingness to consider staying longer (L.A. TIMES, 2/8). In N.Y., Claire Atkinson notes Iger, who turns 66 on Friday and has been with Disney for 43 years, "may be courting trouble" if he decides to stay on and Disney profits "don’t improve" (N.Y. POST, 2/8). VARIETY's James Rainey noted the "three most likely internal candidates" to replace Iger currently are Disney/ABC TV Group President and Disney Media Networks co-Chair Ben Sherwood, Disney Parks & Resorts Chair Bob Chapek and Disney Senior Exec VP & Chief Strategy Officer Kevin Mayer. But there is "no sign that any of the men is being groomed to take over from Iger." Facebook COO and Disney BOD member Sheryl Sandberg's name has been "frequently floated as a successor." Some believe the company "would be smart -- given the flow of content to the internet -- to elevate an executive who is savvy in the ways of the web" (VARIETY.com, 2/7). CNBC contributor Dan Nathan said Iger is “sticking around to fix ESPN," as he is "not going to have his legacy" be the CEO who watched ESPN go down (“Fast Money,” CNBC, 2/7).
