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Volume 24 No. 236
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ESPN Again Weighs On Disney Financials; Iger Unveils Name Of Streaming Service

ESPN again "weighed down the earnings" of Disney as the net "continued to grapple with sweeping changes in the media business," according to Miller & Battaglio of the L.A. TIMES. Overall, it was a "weak" Q4 for Disney, which reported net income of $1.75B, down 1% from last year. Revenue also declined 3% and the company "failed to meet analysts' expectations." Disney's media networks unit -- whose "crown jewel" is ESPN -- had a "tough quarter." Disney "attributed the drop, in part, to lower advertising revenue at ESPN and higher programming costs for the network." But Disney Chair & CEO Bob Iger in a call with analysts "expressed optimism" for ESPN. Iger said, "We've never lost our bullishness about ESPN. The brand is strong. The quality of their programming is strong. There are always opportunities to improve ... but we like where ESPN is these days." Miller & Battaglio note partly in response to the changing media business, Disney "recently outlined bold plans to launch two Netflix-like streaming services -- one for sports and another for films and television shows." The sports service is "scheduled to debut next year." Iger on the conference call said that the sports service "would be called ESPN Plus." He also said that the "pricing for ESPN Plus would be detailed next year" (L.A. TIMES, 11/10). BLOOMBERG NEWS noted Disney reported a $140M "drop in income from investments, citing higher losses at BAMTech, its streaming unit, and Hulu" (BLOOMBERG NEWS, 11/9). At presstime, shares of Disney were trading at $105.37, up 2.6% from the close of business on Thursday (THE DAILY).

WHAT'S THE ISSUE HERE? Ariel Investments analyst Charlie Bobrinskoy said the trend his firm is "nervous about is change in brand spending," as "CPG companies advertise on a lot of Disney channels -- ABC, ESPN -- and those companies seem to be cutting back on their advertising spending, which is just as important as cord-cutting” ("Closing Bell," CNBC, 11/9). CNBC's Julia Boorstin noted Iger "expects BAMTech to transform" Disney ("Fast Money," CNBC, 11/9). CNBC's Michael Santoli added, "The business at ESPN is not collapsing, it’s a slow decline and maybe they can manage the transition” ("Worldwide Exchange," CNBC, 11/10). B. Riley FBR analyst Barton Crockett said, "The viewership problems at ESPN are focused on sports news. Look around you -- how much news are you getting on your phone? How much are you getting from other sources?" ("Squawk Box," CNBC, 11/10).

PLUS SIZE: The WALL STREET JOURNAL's Ben Fritz notes Iger revealed ESPN Plus will be a "part of a redesigned ESPN app that includes sports scores and highlights along with content from the cable network available only to people with a pay-TV subscription." The digital offering will "include sports such as hockey and tennis that don't air on the cable network" (WALL STREET JOURNAL, 11/10). CFRA Research analyst Tuna Amobi said, "If any company is positioned to really make that balance between direct-to-consumer and ... traditional economics, Disney is well positioned to do that" ("Worldwide Exchange," CNBC, 11/10). But Inside.com Founder Jason Calacanis said ESPN is a “bit of a challenge because they cannot charge $7 a month" for that OTT service and "make that work, especially with the massive contracts they have with sports leagues.” Calacanis: "That is going to be a challenge, but I can see Disney immediately getting to tens of millions of people ... and consumers are going to flock to it” (“Squawk Alley,” CNBC, 11/10).