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'Star Wars' Helps Disney More Than ESPN Hurts

Higher football costs offset ad gains at sports network 2/09/2016 04:40:00 PM Eastern

Star Wars

Walt Disney Co. reported record earnings thanks to the new Star Wars film, but ESPN had lower profits, which may stir concerns about the pay TV business.

RELATED: Iger says ESPN subs are up

Fiscal first quarter net income rocketed 32% to $2.88 billion, or $1.73 per share in the quarter, from $2.18 billion or $1.27 a share, a year ago.

Revenue rose 14% to $15.2 billion.

The results exceed most Wall Street forecasts. Disney stock fell 3% in after hours trading.

“Driven by the phenomenal success of Star Wars, we delivered the highest quarterly earnings in the history of our Company, marking our 10th consecutive quarter of double-digit EPS growth,” CEO Bob Iger said. “We’re very pleased with our results, which continue to validate our strategic focus and investments in brands and franchises to drive long-term growth across the entire company.”

Operating income was down 6% to $1.4 billion for the company’s media networks unit, which includes ESPN.

Cable network operating income was down 5% to $1.2 billion as revenue rose 9% to $4.5 billion.  

Operating income was down at ESPN because of higher programming costs, though advertising and affiliate revenue was up. Costs and revenue were up because six more college football bowl games aired in the quarter. They aired in the following quarter a year ago. Costs for NFL programming was also up. CFO Christine McCarthy said that absent the movement of the bowl games, cable earnings would have been in line with revenues.

The extra bowl games contributed to ESPN's ad revenues jumping about 25%. Factoring those out, ad revenues were up about 14%, McCarthy said.

ESPN has been a benchmark for worries about the cable business. Disney has said it expects profit growth to slow because of fewer affiliates. Analysts are also concerned about the rising cost of sports rights, and in the quarter that was a factor in lower operating income for the sports network.

The unit also had lower income from A+E Networks, a joint venture with Hearst.

Broadcasting operating income was down 7% to $223 million as revenue rose 7% to $1.8 billion. Broadcasting had higher programming costs and absorbed a larger equity loss from Hulu.

Revenue was up 8% to $6.3 billion at the media networks. Advertising revnue was up  8% partly because New Year's Eve programming fell in this quarter. Affiliate fee revenue was also higher.

The losses from Hulu were due to increase programming and marketing costs. Subscription and advertising revenue were up.

Iger said that Disney was "bullish" on Hulu.

"We like new platforms. We like their appeal to young people," he said. "It's also a great platform to license our product to. We believe we're going to continue to invest in Hulu" which will continue to develop original programming.

Disney has also sold a bunch of its programming to Netflix, which competes with Hulu and has been blamed for falling ratings at traditional cable and broadcast networks.

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