Disney Seeks Long-Term Pacts With Operators

Iger wants footing to expand cable networks

Walt Disney Co. is talking to the major cable operators about long-term and wide-ranging agreements that would provide the operators with price protection for Disney program services but also give Disney the opportunity to roll out new services, such as high-definition TV, broadband and a Spanish-language sports net.

The talks were confirmed by Disney President Robert Iger last week during a call with Wall Street analysts to discuss the company's fiscal first-quarter earnings (ended Dec. 31, 2002), when the media networks posted a 9% revenue increase to more than $3.2 billion.

He said the talks could include even renegotiating license fees that are already in place.

In the same call, Disney Chairman Michael Eisner said it was all but certain that the National Football League will extend its current TV-rights agreements for another three years and on the same basic terms (albeit at a slightly higher cost) that apply under the existing contracts. Those pacts have been in effect for five seasons.

Said Iger, "We have engaged in what I would call preliminary but interesting and productive dialogue with some of the large cable operators about our long-term relationship not just for ESPN but for all of our services including retransmission consent."

He stressed that the talks are preliminary. Operators have long complained that Disney charges unreasonably high rates for ESPN because the company knows subscribers would be irate if operators pulled the plug on it.

Last week, though, Iger insisted that operators "know the value of ESPN. ESPN delivers more local advertising to cable operators than any other service, and we believe we are delivering great value that more than justifies our rate structure." But, he went on, "we also have other interests as a company, like rolling out new services and strengthening our other existing program services. Therefore, the dialogue, which is addressing some near-term issues from a rate standpoint, we believe ultimately is going to bear fruit for both sides."

Meanwhile, it looks as if the National Football League will let rest—at least for three more years—ideas it has floated recently to boost TV ratings to its games. The league suggested adding regional Sunday- and Monday-night games and shifting key late-season match-ups from the weekend packages (held by CBS and Fox) to Monday nights (held by ABC).

The league has another week or two to decide whether it will extend the current TV-rights packages with the networks for three years or opt out and negotiate new packages for next season and beyond. According to Eisner, though, the league intends to extend the current deals.

Eisner said he and Iger talked with league officials at the Super Bowl (telecast by ABC) last month. "Anecdotally, we got the impression that they were simply going to let the last three years of the contract happen." There will be a cost increase with the extension, he said, describing it as a "very small percentage increase to the existing contract."

For now, then, it looks as if the league is content to take $2.1 billion-plus in annual fees from the rights holders for three more years and worry about new terms in the next go-round.

"It's possible that, after that, there'd be discussions and other opportunities and different ways to go," said Eisner, "but our anticipation is, we will get a letter saying the next three years will continue as per the original contract."

NFL spokesman Dan Masonson responded that the league has not made a decision on extending the current deals and has until Feb. 15 to decide.

As for Disney earnings numbers, broadcasting revenue (ABC and owned stations) was up 7% in fiscal first quarter (calendar fourth quarter) to almost $1.6 billion, while operating income totaled $38 million, a $60 million swing compared with the same period a year ago, when the segment recorded a $78 million loss as ABC swooned.

The company's cable networks posted a 9% revenue gain to almost $1.7 billion, with a 41% drop in profit to $187 million. Broadcast profits were helped by better ratings and ad sales at ABC, while sports-rights payments hampered cable's profit picture, Disney executives said.