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Disney Reports Higher Earnings in Fourth Quarter

Media networks hurt by deferred fees at ESPN 11/07/2013 04:47:28 PM Eastern

UPDATED: 7:11 p.m. ET

The Walt Disney Co. reported higher earnings despite declines at its media network group.

Net income rose 12% to $1.4 billion, or 77 cents a share, from $1.2 billion, or 68 cents a share, a year ago, as the company got big gains from its Parks and Resorts, Studio Entertainment and Consumer Products units. Disney's interactive unit turned around from a loss to a gain.

Revenues rose 7% to $11.6 billion.

The results narrowly exceeded Wall Street forecasts.

"We're extremely pleased with our results for fiscal 2013, delivering record revenue, net income and earnings per share for the third year in a row," said Bob Iger, chairman and CEO of Disney, in a statement. "It was another great year for the company, both creatively and financially, and we remain confident that we are well positioned to continue our strong performance and drive long-term shareholder value."
 
Operating income for Disney's Media Networks group was down 8% to $1.3 billion in the quarter, despite a 1% increase in revenues to $4.9 billion. ESPN had $172 million less in deferred affiliate fee revenues. Those revenues were recognized earlier in the year.
 
At Disney's cable networks, operating income fell 7% to $1.3 billion as revenues rose 1% to $3.6 billion. Without the change in deferred affiliate revenue at ESPN, operating income would have increased $77 million, the company said, with affiliate fee increases at both ESPN and Disney Channel and higher ad revenue at ESPN. Those gains were offset by an increase in programming and production costs because of new rights deals and rate increases for the NFL, college football and Major League Baseball. Disney Channel had higher costs because it had more episodes of original programming.
 
Operating income at Disney's broadcasting units, including ABC, fell 18% to $158 million while revenues rose 2% to $1.4 billion. A year ago, the unit got a boost from syndication sales of Castle and Wipeout. Advertising and affiliate fees grew, with the higher ad revenue reflecting more units delivered at ABC, higher rates and growth in online advertising, partially offset by lower primetime ratings and the rotation of the Emmy broadcast, which was on ABC last year, to CBS.

During Disney's conference call with analysts, Iger said that "we remained confident in ESPN's value and continued rein as the leader in the sports."

In broadcast, Iger added "we are encouraged by ABC's start to season and non-sports programming. ABC is currently a very close second in both C3 and L7 ratings. The network is some of TVs most DVRed shows as well as the number one new show Marvel's Agents of S.H.I.E.L.D. and the fastest growing returning series Scandal."

Disney CFO Jay Rasulo said that excluding the impact of the deferred revenue, ESPN's operating income would have been up in the quarter. "Ad revenue at ESPN was up a solid 9% in the quarter due to an increase in units sold and higher rates. ESPN's ratings were up year-over-year driven by college football, Major League Baseball and the NFL," he said. "So far this quarter ESPN's cash ad sales are pacing up nicely."

Rasulo said that costs were higher at ABC "because we aired more hours of scripted program  compared to last year, when some prime time hours were dedicated to coverage of the presidential election." He said ad revenue at the network was up 10% in the quarter. Quarter-to-date scatter pricing at the ABC Network is running more than 20% above upfront levels.

Iger also commented on the deal Disney made to produce shows based on Marvel characters for Netflix, which had been announced earlier in the day. One analyst asked why the shows weren't being made for a platform owned by Disney.

"Well, we are already producing Marvel shows for our networks. ABC has S.H.I.E.L.D. and has developed another concept and we have shows on Disney XD. And when we look forward we realize that there were just so many Marvel shows we thought we could actually fit on to those platforms. So we looked at other opportunities," Iger said.

"There was a lot of interest from a variety of different distributors, new and traditional platforms and ultimately Netflix won out," he said. "We saw a scenario where they were only going to continue to buy more original programming and this seemed like a good opportunity for us to provide them with some branded product. . . So it was good opportunity we thought for them and a great opportunity for us."

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