Walt Disney Pressured by Sagging ESPN Performance - Update
08 February 2017 - 11:40AM
Dow Jones News
By Ben Fritz
Rising costs and declining viewership at ESPN once again dragged
down quarterly results for Walt Disney Co., whose chief executive,
Bob Iger, gave his first public signal he may stay beyond his
planned retirement in 2018.
Despite Mr. Iger's best efforts to focus investor attention on
Disney's film studio, which had three hits last quarter, most
questions on a conference call with analysts on Tuesday once again
targeted ESPN's struggles and the pending launch of a digital,
direct-to-consumer sports video offering.
Disney's total revenue fell 3% in the quarter ended Dec. 31 to
$14.8 billion, while profit dropped 14% to $2.5 billion. The
declines were largely expected because results for the company's
studio and consumer-products businesses were matched against a
year-earlier quarter that benefited from December 2015's $2 billion
blockbuster "Star Wars: The Force Awakens."
ESPN continued to struggle with long-running problems. The
sports giant lost subscribers, and average viewership and
advertising rates were both down, due in part to fewer college
football playoff games in 2016. Programming costs grew, meanwhile,
because of an expensive new deal with the National Basketball
Association.
ESPN was entirely to blame for an 11% drop in the company's
cable operating income to $864 million. Other cable networks were
flat.
In response to questions about ESPN, Mr. Iger spoke extensively
about work the network is doing with the streaming company BAMTech,
in which Disney invested $1 billion for a 33% stake, to create a
direct-to-consumer sports service. It is targeted to launch by the
end of 2017, the CEO said, and will include a variety of content
not on the linear network, including baseball.
Mr. Iger also noted that ESPN has gained some subscribers from
growth in so-called skinny bundles that include it in slimmer, less
expensive pay-television packages. In addition to offerings from
Sony Corp., AT&T Inc.'s DirecTV, Dish Network Corp. and Hulu,
Mr. Iger said Disney recently signed another deal it has yet to
announce.
The deal is with Alphabet Inc.'s YouTube, according to people
familiar with the matter, for a bundle that will include ESPN, ABC
and other Disney networks in a service expected to launch later
this year. An Alphabet spokesman didn't respond to requests for
comment.
"We don't believe we need to make any acquisitions to accomplish
what we need to do on the digital side," Mr. Iger added. "The best
approach...is to have great content and tell great stories."
Other digital, direct-to-consumer offerings featuring Disney
content are in the works at the company, but are in earlier stages
of development with no set launch dates.
Disney's only business unit to grow in the quarter was parks and
resorts. Revenue rose 6% to $4.6 billion and operating income
climbed 13% to $1.1 billion thanks in part to rising per-guest
spending at the company's domestic parks and the June opening of
Shanghai Disney Resort.
More than seven million people have visited the Shanghai resort
so far, Mr. Iger said, and it was at "virtually max capacity"
during the recent Lunar New Year holiday.
Total attendance could reach 10 million by its first
anniversary. That would be in line with pre-opening estimates from
state-backed Shanghai Shendi Group, which owns 57% of the park, but
below some analysts' expectations. Mr. Iger said he was confident
Shanghai Disneyland would reach break-even by June.
The CEO also announced that "Pandora: World of Avatar," a new
set of attractions based on the No. 1 movie of all time, will open
at Walt Disney World's Animal Kingdom on May 27.
The "Avatar" rides are designed to transform Animal Kingdom from
a partial-day to full-day experience for guests, extending stays
and increasing spending at the company's biggest resort.
Asked by an analyst to comment on a Wall Street Journal report
that he may stay beyond his previously announced retirement in
2018, Mr. Iger didn't rule out the possibility.
"If it's in the best interest of the company for me to extend my
term, I'm open to that," he said. "A good, strong succession
process is under way," he added, despite the lack of any public
comments on the issue by Disney's board of directors, which he
heads.
Disney shares closed down 1% at $109 in Tuesday's regular
session before financial results were released. They were virtually
flat in after-hours trading.
--Shalini Ramachandran contributed to this article.
Write to Ben Fritz at ben.fritz@wsj.com
(END) Dow Jones Newswires
February 07, 2017 19:25 ET (00:25 GMT)
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