Disney CEO: Cord-cutters to blame for ESPN losses
But says being on multiple services will work out ‘very well’ in long run
Subscription streaming TV services such as DirecTV Now, Hulu and Sling TV are becoming as valuable in distributing ESPN as traditional pay-TV services, Walt Disney Co. CEO Robert Iger said Tuesday.
Wall Street has been concerned about declining subscribers of ESPN, a jewel in Disney’s portfolio and a key profit generator. ESPN is in nearly 88 million homes, according to Nielsen, down from more than 100 million homes six years ago.
“Those losses have come from cord-nevers, cord-cutters” and customers moving to TV packages without ESPN, Iger said Tuesday during a conference call discussing Disney’s second-quarter earnings.
But the growing lineup of streaming live TV services — the most recent entrants are Hulu’s live TV service and YouTube TV — has brought in new subscribers. Disney didn’t provide numbers, but Iger said, “We’re seeing really nice growth there, but it’s nascent, and the growth that we have seen in number of subs has not made up for the (other) losses.”
The new subscription Net TV services “have concluded that launching new platforms without ESPN is very challenged,” Iger said.
And being on multiple services will in the long-term “serve this company very well,” he said.
Two weeks ago, ESPN laid off about 100 staffers, including some big-name on-air personal- ities such as former NFL quarterback Trent Dilfer and longtime NFL reporter Ed Werder. Iger addressed the move, noting that ESPN has 8,000 employees.
“I don’t take it lightly, but the number gets headlines,” he said. “But when you think about it in the scheme of things or if you just look at it against, basically, the number of on-air people that ESPN has, it wasn’t a particularly significant number of a reduction.”
Disney shares fell 2.5% to $109.25 in after-hours trading Tuesday even though the company surpassed Wall Street expectations for net income and earnings. On Wednesday, shares closed at $109.66.
Net income of $2.4 billion beat estimates of $2.24 billion, based on analysts polled by S&P Global Market Intelligence. That’s a 12% increase over net income in the same January-March period a year ago.
Earnings per share of $1.50 beat estimates of $1.41 and surpassed $1.36 from a year ago.
Revenue of $13.34 billion fell slightly short of analysts’ estimates of $13.44 billion revenue. But Q2 revenue was up nearly 3% over last year.
Media networks remained the largest revenue generator, up 3% to $5.9 billion. However, increased costs of sports programming for ESPN led to a decrease in operating income. Meanwhile, revenue from Disney’s parks and resorts grew 9% to $4.3 billion.
Analysts are divided on company forecasts. ESPN’s higher programming costs “were partially offset by higher revenue,” Brian Wieser, an analyst for Pivotal Research Group, said in a note to investors Tuesday. He rates Disney as a “sell” with a target price this year of $85, noting risks such as the “hit-driven nature of video content production, perceptions around the ‘death’ of TV advertis- ing and risks around slow-downs in the pay-TV business.”
Even though cord-cutting and cord-shaving has led to concern about Disney for investors, Evercore ISI analyst Vijay Jayant rates the stock as “outperform” with a target price of $120. That’s because the company’s film and TV studios, despite having a record year in 2016 to compare to, “are at the heart of the creativity that drives monetization across its divisions,” he said in a note to investors.