The Walt Disney Company reported better-than-expected earnings, but analysts peppered Robert A. Iger with questions about the health of ESPN.
ESPN. ESPN.
The Walt Disney Company reported better-than-expected quarterly earnings on Tuesday, with theme park profits climbing 20 percent and movie income soaring 21 percent. But Robert A. Iger, Disney’s chief executive, once again found himself peppered with questions about the health of ESPN — long the company’s profit engine — on a post-earnings call with analysts.
“We’ re not sitting on our hands, ” Mr. Iger said when asked about the shift by viewers from traditional shows like ESPN’s “SportsCenter” toward the delivery of scores and game clips on smartphones. “There is nothing we can really do to slow that down, ” he said. “It’s important for us to participate in it, and that’s what we’ re doing.”
Mr. Iger, who used the word “bullish” several times to describe his feelings about ESPN’s future, touted mobile offerings and a coming ESPN-branded subscription streaming service. He noted that Hulu, YouTube, Sling TV and PlayStation have included ESPN in new television packages. “These new services are just as valuable to us” as traditional cable and satellite hookups, he said.
Finally, Mr. Iger said that ESPN managers were aggressively controlling costs — about 100 journalists and on-air commentators were laid off last month — and working on additional programming changes “all with an eye toward addressing not only where consumers are today but improving our nonlive sports programming numbers.”
In the quarter that ended April 1, Disney’s biggest division, Media Networks, which includes ESPN, reported $2.22 billion in operating income, a 3 percent decline. Increasing advertising sales and subscriber fees at ESPN did not offset a spike in costs related to college football playoff games and a new National Basketball Association rights contract.
Disney shares fell about 2.3 percent in after-hours trading, to $109.76.
With brands like “Star Wars, ” Pixar and Marvel in its stable, Disney remains the strongest company in Hollywood. But its future is unclear. Technology is upending not only television viewing but the way that movies have been monetized, rolling through one exclusive release “window” after another. As online shopping increases, Disney’s mall stores and broader merchandising business must adapt.
Adding to the uncertainty, a couple of analysts have speculated that Apple, which is sitting on a mountain of cash and where Mr. Iger is a board member, could mount a $200 billion-plus takeover of Disney. Others have dismissed that as unlikely.
The question of succession also hangs over the Magic Kingdom. Thomas O. Staggs, the company’s heir apparent, stepped down a year ago, after losing Mr. Iger’s full support. Mr. Iger, 66, recently extended his contract for a third time — July 2019 is his new retirement date — to give the board more time to identify a successor. Disney has been tight-lipped about candidates and has not hired an outside search firm.
For its fiscal second quarter, Disney reported net income of $2.39 billion, or $1.50 a share, an increase from $2.14 billion, or $1.30 a share, in the same period a year earlier. Analysts had expected $1.41 a share for the most recent quarter.
Revenue totaled $13.34 billion, a 3 percent increase. Analysts had expected $13.45 billion.
The sharp increase in operating income at Walt Disney Parks and Resorts — $750 million, up from $624 million — reflected a 4 percent increase in attendance at Walt Disney World in Florida and Disneyland in California. The opening of the company’s $5.5 billion Shanghai Disney Resort last June also provided a lift. Mr. Iger said that park would attract more than 10 million guests in its first year, “outpacing our most optimistic projections.”
Walt Disney Studios had $656 million in operating income, up from $542 million, in part because of lower costs and the sale of movies to international streaming services. “Moana” and “Doctor Strange” also sold well on video-on-demand platforms and Blu-ray disc.
Even so, Disney’s vast television business, which represents roughly 49 percent of the company’s annual income, is Wall Street’s fixation.
Disney shares had reached $116 in April, near a 52-week high, but fell last week amid a sectorwide sell-off that was driven by a startling acceleration of cord cutting and reports by Time Warner, Viacom, AMC Networks and NBCUniversal of soft ad sales.
At the same time, the media analyst Michael Nathanson noted in a May 1 report that ratings “took a significant turn for the worse across most cable network portfolios” in the last quarter.
Disney was no exception, with viewership falling at ESPN, Disney Channel, Disney XD, Freeform and Lifetime. ABC, which Disney owns, was also down, although less than its broadcast network competitors, as reality shows like “Dancing With the Stars” and “The Bachelor” chugged along.
ABC announced on Tuesday that it would increase its dependence on the reality genre by reviving “American Idol, ” which Fox canceled in 2015 because of falling ratings. For the quarter, Disney, which is based in Burbank, Calif., said its ABC division had profits of $344 million, a 14 percent increase. Ad sales declined and programming costs increased, but the sale of “Iron Fist” to Netflix and the syndication of “How to Get Away With Murder” reruns more than made up the slack.
