ESPN casts shadow over 'Star Wars' success at Disney

Tue Feb 9, 2016 8:13pm EST
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By Lisa Richwine and Lehar Maan

(Reuters) - Walt Disney Co's ESPN sports network posted a decline in quarterly profit, overshadowing the blockbuster success of "Star Wars: The Force Awakens," which lifted the company to record income and topped Wall Street expectations.

Investors nervous about the future prospects for Disney and other older media companies sent its shares down 3.5 percent to $89.21 in after-hours trading.

The media networks unit that includes ESPN, the Disney Channels and ABC recorded a 5.6 percent decline in operating income to $1.41 billion. That was due in part to higher programming costs and a subscriber decline at ESPN, which offset an increase in advertising revenue.

Disney Chief Executive Bob Iger offered a spirited defense of ESPN on a conference call, describing an "uptick" in customers in the last couple months. Investors and analysts worry that Disney and other media companies are being abandoned by "cord cutters," especially younger viewers unwilling to pay for cable TV bundles of television channels.

"This notion that either the expanded basic bundle is experiencing its demise, or that ESPN is cratering in any way from a subscriber perspective, is just ridiculous," Iger said. "Sports is too popular."

"We fully expect our media networks, including ESPN to continue to deliver bottom-line growth, which means ad revenue growth will continue to outpace spending," he added.

Disney is in discussions with distributors about featuring ESPN in more of the slimmed-down channel packages, Iger said, as well as other new offerings. ESPN is part of Dish Network Corp's Sling TV, and earlier customer losses were due largely to ESPN's absence from some other skinnier TV packages, he said.

For the December quarter, ESPN faced higher programming costs due to a change in the timing of college football bowl games, and the strong dollar also hurt results, Disney said.   Continued...

A character in costume takes part of an event held for the release of the film "Star Wars: The Force Awakens" in Disneyland Paris in Marne-la-Vallee, France, December 16, 2015. REUTERS/Benoit Tessier