TV Helps Boost Disney Earnings

Income up 54% as cable and broadcasting show gains

By Jon Lafayette -- Broadcasting & Cable, 2/8/2011 4:33:22 PM

Growth at its TV networks helped drive Walt Disney Co.'s first quarter earnings sharply higher.

Net income was $1.3 billion, or 68 cents a share up 54% from $844 million, or 44 cents a share, a year ago, the company said Tuesday.

Revenues were up 10% to $10.7 billion.

"We had an excellent first quarter, driven by strong creative content and our unique ability to leverage great entertainment across the many platforms, businesses and markets in which we operate," Bob Iger, President and CEO, said in a statement. "With net income up 54%, it's a great start to a new fiscal year."

Disney's Media Networks group reported a 47% gain in operating income to $1.1 billion. Revenue at the Media Networks Group was up 11% to $4.6 billion. Income was up 64% for broadcasting and 42% for cable networks, with broadcasting reporting a 4% gain in revenue while revenues at the cable networks climbed 16%.

The company pointed to growth at ESPN and Disney Channel. ESPN had higher advertising and affiliate revenue, but those were partially offset by higher programming costs caused by the addition of the college football Bowl Championship Series, including the Rose Bowl. ESPN ad sales were up 34% in the quarter. Adjusting for having two extra bowl games this year, ESPN sales were up 27%, said Disney CFO Jay Rasulo during the company's conference call with analysts. He added that ESPN's ad sales are pacing up double digits so far in the second quarter.

Iger added that the sports marketplace is so strong, that ESPN has added commercial inventory to shows including SportsCenter and Pardon The Interuption.

Disney also garnered higher equity levels thanks to higher affiliate and advertising revenue at A&E Television Networks, which absorbed Lifetime last year. Programming and restructuring costs were lower at AETN.

Ad revenues at ABC's owned TV stations were up 20% in the first quarter, driven by higher political spending. So far in the second quarter, ad sales are pacing at double digit increases over last year.

The ABC Television Network had lower sports programming costs plus lower news and daytime production costs. Its affiliate fees were up, but ad revenues decreased despite higher prices because of lower ratings and the shift of the Rose Bowl to ESPN.

Ad prices in the scatter market were up 24% above upfront levels during the first quarter, Rasulo said. So far this quarter scatter pricing is up 30% from upfront levels.

One analyst asked whether ABC's lower ratings would lead to lower investment in primetime programming. "Make no bones about it, we want to have great creative product out there and we're investing behind it," Rasulo said.

Iger added that ABC has a new head of primetime programming in place, Paul Lee, previously with ABC Family.

"He and I have talked a fair amount because he's in a job that I had many, many years ago. And I've advised him that in heading to the upfront and in the middle of pilot season that it's about making great shows, it's not about making a lotof them. Meaning, in development it's not about volume it's about quality," Iger said.

"That doesn't mean that you are looking to increase pricing or reduce pricing on what you make, but you ought to be making the right things, and if he sees product that he feels is mediocre then don't make it," he said.

"There's been a trend at time in the business to fill slots and just make a lot of pilots, I don't think that's wise, particularly in a time that's really competitive for talent, it doesn't help when you water down the field and I think he's being really disciplined," Iger said. " It's early but I like the product he's developing and we'll get a chance in May to see what he's made and put a schedule together from there."