Disney is still racking up the hit movies, thanks to its Star Wars and Marvel Entertainment franchises. But all the stock market wants to hear about is what’s happening with its ESPN sports network, and frankly the news isn’t all that great.
The media and entertainment conglomerate missed its earnings and revenue targets for the fourth quarter, and ESPN was a big reason why. The sports channel, which accounts for a huge proportion of Disney’s profit, saw advertising revenue slide by double digits.
Not only that, but Disney CEO Bob Iger told analysts on the company’s conference call that 2017 will be weak, and will look especially bad compared to 2016. Among other things, ESPN’s programming costs will climb 8% due to a new contract with the NBA that will cost $600 million.
In contrast to these expectations for what he called “modest” growth next year, Iger was happy to talk about the “robust” growth in 2016—a record year for the company—and the outlook for 2018, which he said was equally rosy.
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The Disney CEO’s enthusiasm seemed to work its magic on the company’s share price (DIS). It was initially off by as much as 3% after the earnings report came out, but by the time Iger had finished talking on the call it had rebounded and was up 3%.
The year just ended marked the sixth consecutive year of profit and revenue growth for the House of Mouse, Iger boasted on the Thursday conference call. Revenue climbed 6% to a record $55 billion, and profit rose 12% to a record $9.4 billion.
There has been plenty of good news on the non-ESPN front, including the blockbuster performance of Star Wars: The Force Awakens and other movies like Frozen. And Iger said the new Disney Shanghai theme park is getting a good reception from customers. ESPN, however, remains a weak spot.
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Adding to some of the existing fears about growth, Nielsen recently said its forecast for November shows ESPN losing more than 620,000 subscribers, the largest monthly loss in ESPN’s history.
Disney complained that Nielsen’s numbers were faulty, in part because they didn’t include new growth in streaming services and out-of-home viewing. The analytics firm withdrew its forecast and said it would double check the numbers, but subsequently announced that it was standing by them.
On Thursday’s call, Iger said that he was confident the network would see growth from millennials accessing it through streaming services, including new ones that ESPN has planned.
The Disney CEO said the ability to unbundle ESPN and offer new streaming services to younger users was one of the main reasons Disney bought a 33% stake in BAMTech, the digital distribution arm of Major League Baseball, in August for $1 billion. “I’m bullish on ESPN’s long-term prospects,” Iger said.
