ESPN Still Causing Issues For Disney’s Cable & Broadcasting Division

This week, Disney has released its reported quarterly earnings for its first fiscal quarter ended December 31st, as part of the report, Disney gave some details on its Media Network division which covers Cable & Broadcasting, which have been hit by problems with ESPN and its purchasing a huge stake in BAM Tech.

Here are the details:

Media Networks revenues for the quarter decreased 2% to $6.2 billion and segment operating income decreased 4% to $1.4 billion.

Cable Networks

Cable Networks revenues for the quarter decreased 2% to $4.4 billion and operating income decreased 11% to $0.9 billion. The decrease in operating income was due to a decrease at ESPN.

The decrease at ESPN was due to higher programming costs and lower advertising revenue, partially offset by affiliate revenue growth. The programming cost increase was driven by contractual rate increases for NBA and NFL programming, partially offset by the shift in timing of College Football Playoff (CFP) bowl games relative to our fiscal quarter end. Six CFP games were aired in the first quarter of the prior year, whereas three CFP games were aired in the current quarter. Lower advertising revenue was due to lower impressions and rates, both of which were negatively impacted by the shift of CFP games. Lower impressions reflected a decrease in average viewership, partially offset by an increase in units delivered. Affiliate revenue growth was due to contractual rate increases, partially offset by a decline in subscribers.

Operating income at our other Cable networks was essentially flat as a decrease in income from program sales was offset by lower programming costs and higher affiliate fees. Affiliate revenue growth was due to contractual rate increases, partially offset by a decline in subscribers.

Broadcasting

Broadcasting revenues for the quarter were flat at $1.8 billion and operating income increased 28% to $379 million. The increase in operating income was due to affiliate revenue growth and decreased programming cost write-downs for network programming. Affiliate revenue growth was primarily due to contractual rate increases. Advertising revenues were flat as higher political advertising at our owned television stations and higher network rates were offset by a decrease in network impressions. The decrease in impressions was due to lower average viewership and, to a lesser extent, fewer units delivered.

Equity in the Income of Investees

Equity in the income of investees decreased 16% to $119 million due to lower equity income from A+E Television Networks (A+E) and equity losses from BAMTech, which was acquired in August 2016. The decrease at A+E was due to lower advertising revenue and higher programming costs, partially offset by higher affiliate fees and lower intangible amortization. The decrease also reflected the impact from the conversion of the H2 channel to Viceland in November 2015. Results at Hulu were comparable to the prior-year quarter.

Our Take:

Disney are continuing to feel the pinch as viewing habits change, which is why Disney have been investing in companies like Hulu and BamTech, to make sure they have a future in broadcasting.  Cable Networks are continuing to suffer as people pull the plug, moving to online services like Netflix and as ESPN continues to lose subscribers, the launch of a stand-alone subscription service for ESPN later this year with BamTech is very important.  They are also adding ESPN content to other digital platforms like PlayStation and DirecTV.