Disney’s Q4 Looks Good, But Clouds Remain On the Horizon For ESPN
Disney’s last earnings report in August triggered a major sell-off across the entire broadcasting and cable sector, wiping billions from the market value of companies like Comcast and CBS, after investors got nervous about a larger-than-expected decline in ESPN subscribers. So there were a lot of investors holding their breath waiting for the next Disney update, just in case there was more bad news.
If you were one of those nervous investors, you can let your breath out now—Disney’s (DIS) results were fairly strong. The company’s revenues came in a hair lower than consensus expectations, at $1.5 billion, but that was up 9% from the same quarter last year. Disney earnings were also higher than expected: $1.20 per share, excluding certain one-time expenses, up 35% from the same quarter in 2014.
At Disney’s broadcasting and cable unit, which includes ESPN, revenues rose by 12% on growth at the sports network as well as A+E—which recently signed a deal to turn over a channel to Vice Media as part of an investment by Disney. Revenue also climbed at Disney’s theme park division, and licensing revenue was up. Expectations are also high for the new Star Wars film, which arrives next month.
Some dark clouds remain on the horizon for Disney, however, especially when it comes to ESPN and the network’s future growth. There’s the ongoing fear about declining subscribers due to cord-cutting, which has become a growing reality—but there’s also some concern that the network may have overpaid for the rights to events like NFL games, and that this will hamper its ability to grow in the future.
ESPN recently announced that it was getting rid of about 300 staff, as part of a drive to reduce costs, something that is clearly intended to prop up profit margins at the network. But the big question for the future is how ESPN will handle the growth of streaming and “over the top” or OTT services.
This kind of thing is obviously on Disney CEO Bob Iger’s mind. He said on the earnings conference call that the company is thinking about using a variety of platforms to “connect with consumers more directly.” Disney already has a service in the UK called DisneyLife that offers the entire library of Disney and Pixar movies as a streaming service, through Apple TV and other platforms. And he said on the call:
“Given the way the world is and what technology makes available, and given the passion that our customers have for our brands: Marvel, Disney, Pixar, ESPN, Star Wars, we have an opportunity to reach the consumer directly in ways that our competitors can’t come close to doing.”
Streaming is a little more complicated for ESPN than it is for Pixar, however. While the network clearly has enough compelling content to offer a streaming OTT service, it is also hamstrung by deals with sports leagues that prevent it from streaming or being part of a subscription streaming service. That’s why it had to remove its videos from YouTube after the launch of YouTube Red. How it will cross that bridge remains to be seen.
For more Fortune coverage of ESPN, watch this video: