Disney Sales Fall as ESPN Troubles Drag Down Cable TV Profit

Updated on
  • Higher program costs, lower ad sales hobble sports channel
  • Challenges at network overshadow solid theme-park results

Disney's 1st-Qtr Earnings Prove to Be a Mixed Bag

Walt Disney Co.’s struggles with ESPN took center stage again Tuesday as the entertainment giant blamed falling viewership and advertising for lower sales and profit.

Revenue at the Burbank, California-based company shrank 3 percent to $14.8 billion in the first quarter ended Dec. 31, Disney said Tuesday in a statement. That missed the $15.3 billion average of analysts’ estimates compiled by Bloomberg.

A decline in profit at ESPN, which had fewer college bowl games and lower viewership, dragged down results in cable TV -- which is by far Disney’s largest business. With the highest subscriber rates in pay TV, Disney’s sports network is especially at risk of losing revenue as cable audiences cancel subscriptions for online services or sign up for so-called skinny bundles that don’t play up sports programming.

Disney also blamed higher programming costs at ESPN, citing rising expenses for both NFL and NBA games. Profit at other cable channels, such as the flagship Disney Channel, was essentially flat, the company said.

  • Profit excluding some items fell to $1.55 a share, beating the $1.49 average of estimates.
  • Earnings at the company’s cable TV unit, home to ESPN and the Disney Channel, fell 11 percent to $864 million. Revenue slumped 2 percent.
  • Film profit fell 17 percent to $842 million, as “Rogue One: A Star Wars” story failed to match “Star Wars: The Force Awakens” from a year earlier even while grossing more than $1 billion worldwide.
  • Consumer products profit fell 25 percent to $642 million, reflecting the same tough comparisons for “Star Wars” merchandise.
  • Theme-park profit rose 13 percent to $1.11 billion, buoyed by higher spending at the domestic and international parks. Results include the company’s Shanghai resort, which opened in June.

Shares of Disney fell 2.1 percent to $106.71 in extended trading after the announcement. The stock lost 0.5 percent to $109 at the close in New York and has risen 16 percent in the past 12 months.

Disney executives had signaled fiscal 2017, which began in October, would see modest earnings growth due to fewer films, hard-to-top sales of “Star Wars” merchandise in the prior year and a $600 million increase in broadcast fees for National Basketball Association games. Chief Financial Officer Christine McCarthy also said in November the company would air half as many college football bowl games in the quarter, compared with the same period a year earlier.

Even with a big new Christmas movie, “Rogue One: A Star Wars Story,” Disney struggled to match the stellar results that “The Force Awakens” delivered in late 2015 to the company’s motion-picture and consumer-products divisions.

Disney led media stocks in a meltdown in 2015 after acknowledging that its flagship ESPN sports network was losing subscribers as viewers traded down to lower-priced TV options. Since then the shares have almost returned to their August 2015 closing high of $121.69.

    Before it's here, it's on the Bloomberg Terminal.