Disney's ESPN Looks to an Online Future, as Cable Subscribers Decline

Faced with ongoing subscriber and viewership losses, Walt Disney Co.'s ESPN is planning to launch digital subscription services focused on particular sports, teams and regions.

Disney Chief Executive Robert Iger once again spent much of a conference call with Wall Street analysts following the release of financial results discussing the fate of ESPN. The sports channel accounts for the majority of profits in the company's cable business, which has lost momentum in the past few years while other divisions are booming.

Overall, Disney on Tuesday reported revenue growth of 3% for the three months ended April 1, to $13.34 billion, and an 11% increase in net income to $2.39 billion compared with the same period a year earlier.

Disney has announced plans to launch its first ESPN "over the top" service, similar to Netflix, by the end of the year, but Mr. Iger's comments on services tuned to the narrow interests of particular sports fans indicate many more are in development.

The CEO said there are no current plans to offer a replica of the ESPN cable channel online to those who don't subscribe to cable, akin to Time Warner Inc.'s HBO Now, but conceded "there is an inevitability to that."

ESPN recently laid off about 100 of its 8,000 employees, including some high profile on-air talent, and is taking steps to shake up its programming as viewership for non-live sports, such as its signature SportsCenter program, are down.

Over the past five years, ESPN has gone from 99 million subscribers to 87.44 million, according to Nielsen. Disney Chief Financial Officer Christine McCarthy said the rate of cable subscriber losses in the recent quarter increased by "less than half a point" from the prior quarter," though she did not offer specifics. Subscriber losses generated a three-percentage-point decline in revenue from pay TV subscriptions, she noted, offset by a seven-point increase from contractual rate increases.

Mr. Iger touted the presence of ESPN and other Disney networks on new less expensive "skinny" TV packages from companies like Hulu and Alphabet Inc.'s YouTube that are aimed at young, price-sensitive consumers. But he conceded they aren't making up for losses from traditional cable and satellite packages.

Disney's cable revenue grew 3% to $4.06 billion in the quarter, while operating income fell 3% to $1.79 billion compared with the same quarter a year ago. Decreases at ESPN, caused in part by higher costs for the NBA and college football playoffs, were offset by increases at the Disney Channels and Freeform.

The company's theme-parks unit saw the biggest revenue increase, up 9% to $4.3 billion, and a healthy 20% increase in operating income to $750 million.

Attendance at domestic parks was up 4% and Shanghai Disney Resort, which opened last June, was profitable for the first time last quarter and will break even in the fiscal year ending September, said Ms. McCarthy. The company's first theme park in mainland China will reach an internal goal of 10 million visitors in the next few days, Mr. Iger said.

Despite difficult comparisons to last year, when "Star Wars: The Force Awakens" was in theaters, revenue at Disney's movie studio was down only 1% to $2.03 billion and operating income surged 21% to $656 million. March's "Beauty and the Beast" was a blockbuster, grossing more than $1.1 billion, and the studio benefited from stronger titles on Blu-ray and video-on-demand, including "Moana" and "Dr. Strange," than last year when it had only the Pixar Animation Studios flop "The Good Dinosaur."

After closing at $112.07, Disney shares were down more than 2% in after-hours trading.

Write to Ben Fritz at ben.fritz@wsj.com

(END) Dow Jones Newswires

May 09, 2017 19:00 ET (23:00 GMT)