Disney reported a Q3 profit of $2.37B, down 9% from last year, while revenue of $14.2B was "essentially flat compared with a year earlier," according to a front-page piece by Miller & James of the L.A. TIMES. Disney’s Q3 earnings report "underscored the reasoning for the tactical realignment," as it is set to debut a new ESPN streaming service next year. Disney’s media networks unit, which houses ESPN and ABC, had a "tough quarter," reporting segment operating income of $1.84B, which was down 22% from a year earlier. The unit’s operating income "declined on a year-over-year basis for the fifth quarter in a row." Within the cable networks group, which includes ESPN, segment operating income was down 23% to $1.46B. Disney "attributed the drop-off, in part, to higher programming costs because of a new NBA TV contract, and lower advertising revenue at ESPN" (L.A. TIMES, 8/9). In N.Y., Brooks Barnes notes most analysts "responded favorably" to Disney's ESPN announcement, though the "reaction might have been better had Disney not simultaneously reported lackluster" Q3 results. Meanwhile, cord-cutting "continues to affect ESPN." Traditional subscriptions declined 3.5% in the most recent quarter; in the year-ago period, ESPN had a 2% decline. Among the "biggest challenges" for Disney in Q3 were costs at ESPN, which recorded about $400M in incremental expenses because of a new contract with the NBA (N.Y. TIMES, 8/9). At presstime, shares of Disney were trading at $102.78 per share, down 4.2% from the close of business yesterday (THE DAILY).
BASKETBALL EFFECT: In N.Y., Claire Atkinson writes ESPN was "hit with high programming costs related to the first year of a new NBA contract plus a contracting ad market" (N.Y. POST, 8/9). In DC, Alex Schiffer notes Disney "attributed the slide to higher programming costs, lower advertising revenue, and severance and contract termination costs." ESPN was also "hurt by a decrease in average viewership and the impact of two fewer games of the NBA Finals" (WASHINGTON POST, 8/9). Disney Chair & CEO Bob Iger said, "We've said all along when a new contract with the NBA kicked in, which is now, that it would have an appreciable effect not just on our quarter but on the 2017 results." Iger: "We actually had an increase in subscription revenue in the quarter from our media networks that was slightly offset by losses in subs" ("Closing Bell," CNBC 8/8). Meanwhile, MoffettNathanson Senior Research Analyst Michael Nathanson said now that the initial hit from the NBA deal has past, there is the potential for a "more flattish growth trajectory for ESPN." Nathanson: "People think it’s going to get a lot worse, but we don’t expect it to get a lot worse because the cost base is now behind you. The risk will be in 2021 when the next NFL deal kicks in. That’s going to be expensive. The question is: How big will the revenue base be at that point?” ("Squawk on the Street," CNBC, 8/9).
