Sales and operating income at Disney's cable-TV group, its largest unit which includes ESPN and the Disney Channel, fell 3% as ratings slipped and a new multi-year contract priced at more than $600 million began with the National Basketball Association. Though advertising at ESPN rose 5% that jump was largely due to the timing of three college bowl games. Removing those games and ad-sales at the sports network fell 1% in the quarter.
Even as CEO Bob Iger warned in the fall that profit for fiscal 2017 was likely to sag, investors have shown little patience. Disney's shares were falling nearly 3% in after-hours trading on Tuesday after closing at $112.07.
Disney's cable-TV group has had to contend with lower ratings as sports viewers turn to a myriad of other digital platforms and networks for sports highlights and commentary. ESPN last month laid off 100 on-air commentators, writers and producers as attempts to adjust costs and develop programming better suited to mobile platforms.
All told, revenue for the quarter ended April 1 was $13.3 billion, missing the $13.45 billion average of analysts' estimates compiled by Bloomberg. Nonetheless, profit exceeded estimates largely because of strong results at Disney's parks and resorts. Profit excluding some items rose for the quarter to $1.50 a share, beating the $1.41 average of analysts estimates.
Disney's parks have become the most stable part of the company's many businesses, and over the next two years Iger said it should account for as much as two-thirds of earnings growth as new resorts open in Tokyo, Paris and Shanghai. The parks and resorts unit group posted a 20% growth in operating income on a 9% jump in sales.
Disney's film business also posted better-than-expected results. Revenue was just 1% less than during the same quarter a year ago despite a difficult comparison with the quarter a year ago when Disney had Zootopia and Star Wars: The Force Awakens playing in theaters. Profit at the film group surged 21% to $656 million.
Yet Iger, alternating between his trademark calm composure and occasional moments of testiness, sought to ease investor concerns insisting that ESPN is rolling out new apps, new programming and a new direct-to-consumer subscription services ("hopefully by the end of the year), that over time, should offset declines in cable-TV subscribers.
Disney CFO Christine McCarthy said the decline in ESPN subscribers was less than 1/2 percentage point than during the company's fiscal first quarter.
Iger was quick to tout ESPN's inclusion in all of the new online pay-TV services such as AT&T's (T) - Get Report DirecTV Now, Alphabet's (GOOGL) - Get Report YouTubeTV and Hulu's new multi-channel streaming service.
"These new platforms know they can't launch without ESPN," Iger said. "No one is better positioned than ESPN."
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