Disney Logs Improved 3Q Results

ABC is on right path to recovery, Iger says

ABC showed some financial improvement during parent Disney's fiscal third quarter (ended June 30) in both operating cash flow and revenue, with most of it from cost-cutting at the network and revenue gains by the TV and radio stations.

On a call with analysts and investors last week, Disney executives acknowledged that the network isn't yet running smoothly. Disney President Bob Iger said it will take at least another year for ratings to rebound. But that shouldn't come as great surprise, he said, because network recoveries are always "more gradual in terms of a bounce-back."

Iger also thinks the network is on the right path to recovery with a plan for 10 new comedies (the most of any network) next season. Comedies seem to be working better at ABC than other genres.

And, while the broadcast unit is still in comeback mode, cable is and should remain a key revenue-growth driver for the company, Iger said, stressing that the company intends to be very aggressive in pursuit of higher affiliate fees for ESPN in the future. ESPN offers "unparalleled value" to cable systems, he said, noting that operators rank ESPN No. 1 in both driving local ad sales and selling broadband products. ESPN Motion, the broadband service launched six months, is now up to 1.7 million subscribers, he added.

Disney reported a 2% gain in broadcast revenue for its fiscal third quarter, to $1.23 billion, while operating profits more than doubled to $183 million. Cable-network revenues were up 38% to $1.27 billion, with a 5% decline in operating profits to $201 million. The company cited a better advertising climate for ABC and its owned TV stations, fewer make-goods, and lower programming costs at the network. On the cable side, the company cited higher programming costs at ESPN (particularly rights for the National Basketball Association) and continued investment in ABC Family.

Iger said the pace of sales remains very strong at both the TV- and radio-station groups, thanks to heavy demand from advertisers generally but also solid ratings at both divisions.

Companywide revenues for the quarter were up 7% to $6.2 billion, with a 2% gain in operating income to $846 million. Solid performances at the media networks and studio divisions offset a sluggish parks and resorts unit, which is still reeling from the effects of a downturn in consumer travel.

But Wall Street reacted favorably, driving Disney's stock up 3% to $22.52 by midday Friday, the first trading period after Disney released results late Thursday. Analysts didn't change their long-term outlook but noted that the company seems to be making some progress. "While Disney has yet to turn the corner," said Merrill Lynch entertainment analyst Jessica Reif Cohen, "we believe the company has made meaningful improvement in the majority of its segments."