Disney Slides as Rising Costs at ESPN Drag Down Profit

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Walt Disney Co., the world’s largest entertainment company, fell after reporting a drop in fourth-quarter profit at ESPN, driven by increased costs for sports programming.

Disney declined 2.2 percent to $90 at the close in New York. They had reached a record of $92 yesterday, before the results were announced.

Earnings narrowly beat analysts’ estimates, lifted by soaring film earnings. The studio’s August release “Guardians of the Galaxy,” based on a largely unknown set of Marvel superheroes, became the top-grossing movie in the U.S. this year, with $329.4 million in ticket sales. At ESPN, multiyear contracts for sports such as professional baseball and football increased costs.

“These decisions are not made for a quarter or for a fiscal year,” Chairman and Chief Executive Officer Bob Iger said on Bloomberg TV. “ESPN’s trajectory is healthy.”

Profit excluding some items rose to 89 cents a share, the Burbank, California-based company said yesterday in a statement, beating the 88-cent average of 27 estimates compiled by Bloomberg. Sales grew 7.1 percent to $12.4 billion in the period ended Sept. 27, meeting projections.

TV networks, Disney’s largest division, posted slightly lower profit of $1.437 billion, reduced by the higher costs at ESPN and marketing expenses at the Disney Channel overseas. Profit rose at the company’s ABC broadcast unit due to higher sales of network-produced shows and fees from affiliates. Total revenue at the TV division grew 5.4 percent to $5.22 billion.

The company last month renewed a deal to carry National Basketball Association games through 2025 at almost triple the old price.

Theme Parks

Income at the company’s theme parks grew 20 percent to $687 million, due to higher attendance and guest spending at the company’s U.S. resorts. During the quarter, Universal Studios, a unit of Comcast Corp., opened its newest Harry Potter attraction in Orlando, Florida.

Disney’s film studio more than doubled profit to $254 million, buoyed by “Guardians of the Galaxy,” which features a machine-gun toting raccoon. The year-earlier slate included “The Lone Ranger,” which lost as much as $190 million.

Disney also said it completed principal photography and had an official title for its first “Star Wars” movie since the $4 billion acquisition of Lucasfilm Ltd. two years ago. “Star Wars: The Force Awakens” features many players from the original 1977 picture, as well as a cast of younger actors. It’s scheduled to be released in December 2015.

Consumer Products

Disney’s consumer products unit, boosted by licensed sales of “Frozen” and Marvel-themed merchandise, lifted operating profit 9.2 percent $379 million. Disney Interactive, which released the latest video game Disney Infinity 2.0 on Sept. 23, posted a 13 percent rise in profit to $18 million.

Iger said the company had no immediate plans to offer ESPN or the Disney Channel on a standalone basis over the Internet, as Time Warner Inc. recently announced with HBO and CBS Corp. with its namesake network. The $65 average monthly cable bill customers pay for 150 channels is a better value than if someone purchased the networks separately, Iger said.

“If the bundle were to break up, which we don’t foresee happening anytime soon, we are very well positioned to move very quickly to take advantage of a broadband-only universe or a la carte universe because of the strength of our brands and the programming rights we bought,” Iger said.