Disney's share price rose 29 cents in after hours trading yesterday, closing at $23.15. It had risen to $25.56 at presstime Wednesday. Analysts greeted the company's second quarter earnings positively and Disney executives offered some glimmers of hope on the firms earnings call last night.
Yesterday the company's media networks unit saw a 4% drop in operating income to $1.3 billion for the quarter and a 2% increase in revenue to $3.6 billion. That news was well received by analysts, even as operating income at the broadcasting unit dropped 38% to $162 million for the quarter. Cable networks operating income increased by 5% to $1.1 billion.
Company chief financial officer, Thomas Staggs, delivered some slightly optimistic news on the local TV ad front. Weakness in the local ad market and the absence of political spending drove a 30% decline in revenue, still, if you exclude political ad spending from both quarters [first and second], the trend in ad sales was slightly better than what we saw in Q1. Staggs characterized the improvement as a few percentage points.
Commenting on the ad market for ABC network, Staggs said ad sales were down modestly versus last year though pricing was holding up. "The ad market is there. It's perhaps not as robust, certainly not as robust as it was a year ago at this time, but at the same time, for the right shows, for the right line-up, for the right demographics, there's an ad market to be had." Chief executive, Robert Iger, said the company remained pleased with the mix of shows at ABC but added, "We recognize the importance of adding new shows to ABC's line-up."
Asked to characterize an earlier statement about where the company was seeing stability, Iger responded, "We were referring to the business in general, not specifically to the ad business, although we do believe that is one that we could say we see stability."
In cable, EPSN increased affiliate revenue but saw ad sales down, by a high single-digit percentage in the quarter, "consistent with what we saw in Q1", said Staggs, due in part to continued softness in several ad categories, including consumer electronics, automotive and financial services. Iger mentioned that this quarter, ESPN is finding a strong market for its NBA and baseball line-up. "The movie studios have been quite helpful and the quick service restaurant segment is also doing nicely."
Both senior executives spoke at length on the call about the decision to get in bed with online video company Hulu, owned by News Corp. and NBC Universal rather than Google's YouTube. The ability to take an equity stake in Hulu was the main deciding factor, they said. Staggs said: "What we had in Hulu was the opportunity to become an equity partner, which is something we think will derive value for the company over time, and it's to be part of a play that's primarily a long form play that doesn't have to sell itself as something new anymore. It's already out there and already has sold itself, whereas YouTube had to be converted to a long-term play." The company has still left a door open for long-form content to land on YouTube, which delivers largely a short form video menu.
Iger also said the company is eyeing a plan to have its own online Disney-branded movie service. "We think Disney's brand is unique when it comes to films and we would like to take advantage of that unique quality and create an online destination for Disney-branded movies."
Commenting on the idea of authenticating pay-TV subscribers to allow them access to online video a central tenet on Time Warner's push towards a viable business model for free TV content, Bob Iger said, he wasn't necessarily opposed to the idea and added that it may even work to generate new revenue from subscribers who may pay an additional fee to watch online. Iger however had some strong words for those executives suggesting blocking consumers from freely watching video online. "Where I start to have problems is that if authentication is being developed as a means of blocking people who are not multi-channel subscribers from watching anything online, we believe that is not only anti-consumer but anti-technology and we have some issues with that."