Calendar Drops Disney Earnings

Deferred income at ESPN also has impact on results

By Jon Lafayette -- Broadcasting & Cable, 11/11/2010 4:31:13 PM

Because of the timing of some ESPN revenues and a fiscal calendar with one fewer week than a year ago, Walt Disney Co. posted a decline in fourth-quarter earnings.

Net income was $835 million, or 43 cents a share in the quarter, down 7% from $895 million, or 47 cents per share a year ago. For the full year, net income rose 20% to $4 billion, or $2.03 a share, from $3.3 billion in 2009.

Revenues were down 1% in the quarter and up 5% for the year.

"The 2010 fiscal year was a financial and strategic success for The Walt Disney Company with performance driven by great content like Toy Story 3 and the way we benefited from that content across our many businesses," said Disney president and CEO Bob Iger in a statement. "Our fourth-quarter earnings grew solidly after factoring out a programming write off at one of our equity networks, the timing of ESPN revenue recognition and the effect of one fewer week of operations this year than last."

Disney's earnings were released about 15 minutes before the close of trading. The company said it was looking at that error.

Disney's media networks group, which includes ABC and ESPN, showed an 18% decline in operating income to $1.2 billion in the fourth quarter as revenue slipped 7% to $4.4 billion.

For the quarter, operating income at Disney's cable networks fell 28% to $1.1 billion as revenues dropped 6% to $3.1 billion. A year ago, ESPN recognized $525 million in deferred revenue in the fourth quarter. This year, it recognized only $170 million. A $58 million programming write-off at A&E Television Networks, which absorbed Lifetime, also affected operating income. During the quarter, affiliate fees were higher and there were increased ad revenues. For ESPN, ad revenues were up 19%. Adjusted for the missing week, they were up 22%, CFO Jay Rasulo said during Disney's earnings call with analysts.

Operating income for Disney's broadcasting assets increased to $145 million from just $2 million one year ago. Revenues were down 7% to $1.3 billion. There were decreased programming and production costs at ABC, higher advertising revenues and net affiliate fees. Ad revenues were up 15% at the local station group, and would have been up 26% with an extra week, Rasulo said. Programming costs were down because of a change in the programming mix on the network, savings in daytime and news production and decreased sports programming expenses. Revenues were impacted by lower sales of ABC Studio productions compared to a year ago, when According to Jim and Grey's Anatomy were sold.

Looking ahead to the first quarter, Rasulo said scatter prices, were up 22% above upfront, compared to 23% during the fourth quarter. Ad sales at ESPN and the TV stations were pacing for double digit increases.