Disney Stresses ESPN To Allay Cable Fears
February 10 2016 - 3:02AM
Dow Jones News
(FROM THE WALL STREET JOURNAL 2/10/16)
By Ben Fritz
It was the quarter during which Walt Disney Co. released a movie
that grossed $2 billion at the box office and drove $3 billion in
merchandise sales. But the biggest story for the company that
successfully revived "Star Wars" continues to be subscriber trends
at its ESPN cable network.
Delving into a level of detail rarely seen at a company worth
more than $150 billion, Disney Chief Executive Robert Iger said on
a conference call with analysts Tuesday that ESPN has experienced
an uptick in subscriber numbers in the past couple of months. The
remarks were part of an effort to counter the arguments that ESPN's
business is in decline, a narrative that has driven the media
giant's stock down 24% since August.
"The notion that the [cable] bundle is experiencing its demise
or that ESPN is cratering in any way from a sub[scriber]
perspective is just ridiculous," Mr. Iger said. "We feel great
about the product and we believe the predictions many have made are
more dire than they should be."
Despite the recent growth Mr. Iger mentioned, ESPN lost
subscribers in the quarter ended Jan. 2 at the same time that
programming costs rose, due to costly deals for the rights to
sports such as professional and college football. ESPN's costs also
rose thanks to the timing of the college football playoffs, which
occurred in the company's fiscal first quarter, ended Jan. 2 this
year, but were in the fiscal second quarter a year earlier.
Operating income for Disney's television business, of which ESPN
is the largest segment, fell 6% in the quarter to $1.41 billion,
while revenue rose 8% to $6.33 billion. Excluding the timing of the
college football playoffs and the rising value of the U.S. dollar,
television operating income growth would have been close to revenue
growth, said Disney's Chief Financial Officer Christine
McCarthy.
ESPN ad revenue grew a robust 25% in the quarter from a year
ago. Ms. McCarthy said the growth rate would have been 14%,
excluding the timing of the college football playoffs and the
absence this year of Nascar.
Separately, ESPN and DraftKings Inc. have unwound their
exclusive advertising relationship. The deal, worth $250 million,
would have allowed DraftKings to be the exclusive daily fantasy
site that advertises on ESPN in 2016. The end of the exclusivity
means that ESPN will now be able to sell ad time to DraftKings'
competitors, a person familiar with the matter said.
Much of the recent modest uptick in ESPN subscribers came from
so-called skinny packages that have fewer channels and are aimed at
cost-conscious young consumers, said Mr. Iger. He specifically
pointed to gains from Dish Network Corp.'s Sling TV. He said the
company is pushing aggressively to include ESPN and its other
channels in similar offerings.
However the CEO said he wasn't ready to predict that the recent
positive trend in subscriber numbers would continue. As of the end
of Disney's last fiscal year in October, ESPN has 92 million
subscribers in the U.S., the company said in a regulatory filing,
down from 95 million the prior year and 99 million in 2013.
Disney shares were down 3.5% to $89.10 in after-hours trading
Tuesday, reflecting continued concerns about the future of
cable.
Nonetheless, "Star Wars: The Force Awakens" drove a strong
quarter for Disney's movie and consumer products businesses. Though
it came out just two weeks before the end of the fiscal year, the
movie sparked a 46% rise in revenue at the studio to $4.28 billion
and an 86% increase in operating income to $1.01 billion -- the
first time Disney's movie business has earned more than $1 billion
in a quarter.
Consumer products and interactive media revenue grew 8% to $1.91
billion and operating income increased 23% to $860 million thanks
in large part to Star Wars merchandise, including a hit videogame
from Electronic Arts Inc. At more than $3 billion, world-wide sales
of Star Wars merchandise last quarter were more than three times as
high as one year ago.
Digital downloads and DVD sales of the original six "Star Wars"
films also increased last quarter, leading to an increase in
home-entertainment revenue for Disney's studio, a rarity at time
when that overall business has been declining for years throughout
Hollywood.
Mr. Iger said consumer products sales were surprisingly strong
in some markets where the movie "didn't perform as we had hoped."
Among the countries where "The Force Awakens" wasn't a blockbuster
hit as in the U.S. were China, Russia and South Korea.
With new "Star Wars" movies scheduled to come out every year,
Mr. Iger said he didn't believe the first sequel to the
science-fiction franchise in a decade fueled a one-time surge in
revenue. "We think we're not seeing something aberrational now, but
the establishment of an old franchise at a much higher level," he
said.
At Disney's theme parks business, 10% growth in attendance and
7% growth in spending at domestic theme parks led to a 9% increase
in revenue to $4.28 billion and 22% increase in operating income to
$981 million.
---
Alexandra Berzon and Shalini Ramachandran contributed to this
article.
(END) Dow Jones Newswires
February 10, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
Walt Disney (NYSE:DIS)
Historical Stock Chart
From Aug 2024 to Sep 2024
Walt Disney (NYSE:DIS)
Historical Stock Chart
From Sep 2023 to Sep 2024