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Disney’s Iger Stays Positive Despite ESPN Struggles

Premiere Of Walt Disney Pictures And Lucasfilm's "Rogue One: A Star Wars Story" - ArrivalsPremiere Of Walt Disney Pictures And Lucasfilm's "Rogue One: A Star Wars Story" - Arrivals
Disney CEO Bob Iger attends the premiere of "Rogue One: A Star Wars Story" in Hollywood, California, on Dec. 10, 2016 Jason LaVeris—FilmMagic/Getty Images

Walt Disney CEO Bob Iger said on Tuesday that he is “confident in ESPN’s future.”

His optimism came despite the fact that Disney’s latest quarterly report showed the cable sports network once again weighed down its parent company’s bottom line amid higher programming costs and an ongoing decline in subscribers. ESPN has already lost roughly 10 million subscribers since 2013, as consumers cut the cord and move away from traditional pay-TV services that for years made ESPN one of cable television’s most valuable assets.

In Disney’s fiscal quarter ending April 1, the company’s cable division saw a 3% dip in profit to $2.2 billion led by declines at ESPN, where the network saw higher costs on broadcasting rights fees for NBA and college football games. The cable division’s revenue increased 3% to $4.06 billion, but that fell short of analysts’ expectations, just as Disney’s overall revenue came as something of a disappointment. The company reported that its quarterly revenue increased 2.8% to $13.3 billion, short of the $13.5 billion analysts had forecasted.

Disney’s overall quarterly profit rose 11.4% to $2.4 billion, as the company’s earnings per share of $1.50 beat forecasts for $1.41. Despite beating expectations on some fronts, Disney’s shares dipped in after-hours trading on Tuesday afternoon by more than 2.5%.

ESPN has been a drag on Disney’s overall numbers for several successive quarters. So, what is the source of Iger’s rosy outlook for it, considering nearly 100 recent job cuts, including a number of on-air personalities? First of all, the Disney noted on Tuesday that ESPN’s decline in the most recent quarter was “partially offset by affiliate and advertising revenue growth.”

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Meanwhile, Iger told analysts in a post-earnings conference call that live sports are still extremely important to consumers, even amid the cord-cutting trend. Iger cited the fact that the growing number of live-television streaming services entering the market in the past year have all sought to launch with ESPN, as Disney has partnered with over-the-top services such as Sony’s Playstation Vue, Dish Network’s SlingTV, and (most recently) Hulu’s live-TV offering. (Disney also owns a 30% stake in Hulu.)

Iger said on the earnings call that Disney has seen “significant growth” from subscribers to various types of streaming services. However, he noted, that unspecified growth has not yet been able to offset the ongoing subscriber exodus away from traditional TV platforms. Still, Iger said that ESPN is able to make just as much money per subscription from those streaming services as it does from the network’s placement in cable packages. And, the Disney CEO expects that streaming will one day represent a much larger portion of the pay-TV landscape. “We believe they’ll be a much bigger part of the business going forward,” Iger said.

With that streaming growth in mind, Iger once again teased Disney’s plans to introduce a stand-alone streaming service for ESPN at some point this year. Of course, it is hard to say just how much such a service would help offset Disney’s ESPN subscriber woes, especially considering that the sports network is already available online as part of the various aforementioned streaming partnerships. However, Disney does have an ace up its sleeve in the form of the top-notch streaming platform the company lined up last summer when it paid $1 billion for a one-third stake in BAMTech, which created Major League Baseball’s subscription streaming service and also counts HBO as a customer.

Iger isn’t revealing too much about the standalone streaming plans for ESPN, but the Disney CEO said the product would likely give consumers the option of buying packages for the specific sports they want to watch and that it would not just be an online version of the live cable product. Iger touted BAMTech’s strengths, including dynamic ad insertion technology that can help bolster advertising revenues by showing targeted ads to specific user demographics.

Aside from the struggles at ESPN, the only topic that Iger seemed less excited to talk about was Disney’s succession plan after the CEO announced earlier this year that he would delay his retirement yet again. Despite the fact that there are no known front-runners to replace Iger when his new contract ends in June 2019, the Disney CEO was adamant on Tuesday that the company’s board will find a suitable successor. “We have enough time to consider the right candidates, to make the right decision, and to craft a transition that should be successful,” Iger said on the earnings call.