It's become as reliable as a LeBron James layup. Every quarter Disney's (DIS) - Get Walt Disney Company Report ESPN cable sports behemoth loses subscribers, dragging down operating earnings at the company's cable unit that nearly halve the media giant's operating income. And most quarters, Disney's hyper-charged movie studio rides to the rescue, with an outsized box office performance by a superhero film from Marvel or a Pixar animated flick.
It may not be as simple, though, when the company reports its fiscal fourth-quarter earnings on Thursday after the market close. The movie studio didn't release any supersized hits during the quarter, although summer blockbuster Finding Dory continued to collect hefty ticket sales through the fall. And Disney's eagerly awaited Steven Spielberg film, The BFG, underwhelmed critics and performed below expectations.
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Overall, Disney's films collected $341 million at the box office during the quarter, 10% below a year ago, figures Michael Nathanson, a partner and analyst with MoffettNathanson, who cut his projections for the studio, projecting a 3% decline in earnings instead of a 2% increase.
In October Nathanson reduced his quarterly earnings estimate for the company by 6 cents to $1.18 a share. That's still above the $1.16 a share consensus from analysts surveyed by Thomson Reuters (TRI) - Get Thomson Reuters Corporation Report.
The analysts also estimated the company would report revenue of $13.5 billion for the quarter. For its full year, they looking for earnings per share of $5.77 and $56 billion in revenue.
Needham analyst Laura Martin lowered her earnings estimate from $1.22 to $1.12 a share after Disney CEO Bob Iger said during the company's last earnings call the company would have one fewer week in the quarter. That slashed an estimated $350 million from the company's operating income, Iger allowed, most of it coming from the company's cable unit.
Iger has made a recent habit of making news at his earnings calls, and analysts will be eager to divine if his comments this time hint at an initiative to diversify the company to minimize the impact of ESPN's wobbly subscriber performance. In the last quarter, the company said it would pay $1 billion to buy a 33% stake in BAMTech, a video streaming company created by Major League Baseball.
Together, Disney and BAM intend to launch an over-the-top video multi-sports subscription service, possibly within weeks, to be sold directly to consumers. A BAM spokesman did not return calls seeking comment.
Rumors also have circulated around Disney for weeks that it is contemplating making a bid to buy Twitter (TWTR) - Get Twitter, Inc. Report or Netflix (NFLX) - Get Netflix, Inc. Report, although the company reportedly decided not to participate in an auction for Twitter.
A Disney spokeswoman did not return an email seeking comment.
Disney has vigorously battled continuing perceptions of how deeply ESPN is hurting. On Oct. 31, it objected to a report by Nielsen that the sports channel had lost a record 621,000 subscribers over the month, forcing the rating agency to initially retract the report while it re-crunched its numbers.
When Nielsen later said it stood by its findings, Disney said in a statement that "the most recent snapshot from Nielsen is a historic anomaly for the industry and inconsistent with much more moderated trends observed by other respected third-party analysts." It also said Nielsen's numbers didn't include subscribers served by ESPN's newer digital distribution partners.
On the same day, ESPN rushed out a press release that detailed what it called "a record-setting month" for ESPN's international viewership.
Falling subscribers at ESPN dragged down Disney's cable unit in the third quarter, with revenue and operating income growing by an anemic 1%. In the company's second quarter, ESPN revenue fell by 2% although operating income jumped by 12% on the strength of lower programming costs.
Nathanson estimated that earnings at Disney's cable unit could fall by as much as 14% in the company's final quarter as a result of one fewer week and the effects of falling ratings. Ad sales will fall as much as 14%, he also figured, in part due to Olympics coverage by Comcast's (CMCSA) - Get Comcast Corporation Class A Report NBCUniversal broadcast and cable outlets.
One piece of good news for Disney may be its long-suffering ABC broadcast network, which is expected to show a boost in operating earnings. That's because it broadcast this year's Emmy Awards, which rotate annually among the networks.
This article is commentary by an independent contributor. At the time of publication, the author held positions in Disney, Comcast, Netflix and Thomson Reuters.