Disney Earnings Drop as Profits at ESPN Plunge

Higher costs hurt sports network
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The Walt Disney Co., which announced a major strategic change to stream content direct to consumers, reported lower profits in its fiscal third quarter, with big drops at its TV businesses, notably ESPN.

Net income fell 9% to $2.366 billion, or $1.51 a share, from $2.597 billion, or $1.59 a share.

Revenue was down a hair at $14.238 billion.

Related: Disney Set to Launch Direct to Consumer Services

Operating income at Disney’s Media Networks unit was down 22% to $1.842 billion.

Revenues at the media network were down 1% to $5.866 billion.

Cable network operating income fell 23% to $1.5 billion, mostly because of a decline at ESPN caused by higher programming costs—including a new contract with the NBA, lower advertising revenue and severance and contract termination costs. Cable revenues were down 3% to $4.086 billion.

Disney CFO Christine McCarthy said ESPN absorbed about $400 million of the $600 million increase in the first year of the NBA deal during the third quarter.

 Advertising revenue at ESPN was down 8% as higher rates were offset by a decrease in impressions. McCarthy said that ESPN had 2 fewer NBA Finals games and 2 fewer conference playoff games during the quarter. The revenue lost due to the absence of those games was equivalent to ESPN’s lower ad revenues in the quarter, she said.

So far this quarter, ESPN’s ad sales are packing down compared to a year ago.

Disney CFO Christine McCarthy, speaking on the company's earnings call with analysts,  said ESPN absorbed about $400 million of the $600 million increase in the first year of the NBA deal during the third quarter.

 Advertising revenue at ESPN was down 8% as higher rates were offset by a decrease in impressions. McCarthy said that ESPN had 2 fewer NBA Finals games and 2 fewer conference playoff games during the quarter. The revenue lost due to the absence of those games was equivalent to ESPN’s lower ad revenues in the quarter, she said.

So far this quarter, ESPN’s ad sales are packing down compared to a year ago.

ESPN's affiliate revenue was up 2%. Affiliate revenue grown was hrut by a drop in subscribers that McCarthy pegged at about 3.5%

Broadcast operating income was down 22% to $253 million. Revenue was up 4% to $1.780 billion.

The decrease was due to lower advertising revenue and higher programming costs.

Ad revenue was down 5%. So far in the current quarter scatter prices are 11% higher than upfront prices, McCarthey said.

But Disney CEO Bob Iger noted that "we've had some ratings challenges at ABC" that have prevented it from capitalizing on the strong scatter pricing. "We've got to have better performance," he said.

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