DIS Walt Disney Co

By Ben Fritz 

Rising costs and declining viewership at ESPN once again dragged down quarterly results for Walt Disney Co., whose chief executive, Bob Iger, gave his first public signal he may stay beyond his planned retirement in 2018.

Despite Mr. Iger's best efforts to focus investor attention on Disney's film studio, which had three hits last quarter, most questions on a conference call with analysts on Tuesday 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 $14.8 billion, while profit dropped 14% to $2.5 billion. The declines were largely expected because results for the company's studio and consumer-products businesses were matched against a year-earlier quarter that benefited from December 2015's $2 billion blockbuster "Star Wars: The Force Awakens."

ESPN continued to struggle with long-running problems. The sports giant lost subscribers, and average viewership and advertising rates were both down, due in part to fewer college football playoff games in 2016. Programming costs grew, meanwhile, because of an expensive new deal with the National Basketball Association.

ESPN was entirely to blame for an 11% drop in the company's cable operating income to $864 million. Other cable networks were flat.

In response to questions about ESPN, Mr. Iger spoke extensively about work the network is doing with the streaming company BAMTech, in which Disney invested $1 billion for a 33% stake, to create a direct-to-consumer sports service. It is targeted to launch by the end of 2017, the CEO said, and will include a variety of content not on the linear network, including baseball.

Mr. Iger also noted that ESPN has gained some subscribers from growth in so-called skinny bundles that include it in slimmer, less expensive pay-television packages. In addition to offerings from Sony Corp., AT&T Inc.'s DirecTV, Dish Network Corp. and Hulu, Mr. Iger said Disney recently signed another deal it has yet to announce.

The deal is with Alphabet Inc.'s YouTube, according to people familiar with the matter, for a bundle that will include ESPN, ABC and other Disney networks in a service expected to launch later this year. An Alphabet spokesman didn't respond to requests for comment.

"We don't believe we need to make any acquisitions to accomplish what we need to do on the digital side," Mr. Iger added. "The best approach...is to have great content and tell great stories."

Other digital, direct-to-consumer offerings featuring Disney content are in the works at the company, but are in earlier stages of development with no set launch dates.

Disney's only business unit to grow in the quarter was parks and resorts. Revenue rose 6% to $4.6 billion and operating income climbed 13% to $1.1 billion thanks in part to rising per-guest spending at the company's domestic parks and the June opening of Shanghai Disney Resort.

More than seven million people have visited the Shanghai resort so far, Mr. Iger said, and it was at "virtually max capacity" during the recent Lunar New Year holiday.

Total attendance could reach 10 million by its first anniversary. That would be in line with pre-opening estimates from state-backed Shanghai Shendi Group, which owns 57% of the park, but below some analysts' expectations. Mr. Iger said he was confident Shanghai Disneyland would reach break-even by June.

The CEO also announced that "Pandora: World of Avatar," a new set of attractions based on the No. 1 movie of all time, will open at Walt Disney World's Animal Kingdom on May 27.

The "Avatar" rides are designed to transform Animal Kingdom from a partial-day to full-day experience for guests, extending stays and increasing spending at the company's biggest resort.

Asked by an analyst to comment on a Wall Street Journal report that he may stay beyond his previously announced retirement in 2018, Mr. Iger didn't rule out the possibility.

"If it's in the best interest of the company for me to extend my term, I'm open to that," he said. "A good, strong succession process is under way," he added, despite the lack of any public comments on the issue by Disney's board of directors, which he heads.

Disney shares closed down 1% at $109 in Tuesday's regular session before financial results were released. They were virtually flat in after-hours trading.

--Shalini Ramachandran contributed to this article.

Write to Ben Fritz at ben.fritz@wsj.com

(END) Dow Jones Newswires

February 08, 2017 02:47 ET (07:47 GMT)

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