Fiscal Q3 (April-June) revenues were down in every business unit for the Walt Disney Company, so the 2% drop for the Media Networks division was not too bad by comparison.
Total company revenues fell 7% in the quarter to $8.6 billion, with double digit percentage declines for Studio Entertainment, Consumer Products and Interactive Media. Parks and Resorts revenues were down 9% and Media Networks was the star performer, with revenues down only 2% to $3.96 billion. It also led for segment operating income, down 13% to $1.32 billion (although the Interactive Media division reduced its operating loss form a year ago). Total profits of 52 cents per share were ahead of the Thomson/First Call consensus of 50 cents, but revenues were below expectations.
The Media Networks division has two parts: Broadcasting, which includes the ABC Television operations and the O&O television group, and Cable Networks, which obviously includes the cable networks, but also the Radio Disney and ESPN Radio operations. Broadcasting revenues were down 4% to $1.4 billion and Cable Networks revenues declined only 1% to $2.56 billion.
Operating income at Broadcasting decreased 34% to $204 million for the quarter primarily due to higher costs for primetime programming and lower advertising sales at the O&O stations and at the ABC Television Network, partially offset by increased international sales of ABC Studios productions, led by “Grey’s Anatomy” and “Criminal Minds.” Higher programming costs were driven by increased pilot costs as pick-up decisions this year generally occurred in the current quarter compared to the fourth quarter of the prior year as the Writers Guild of America work stoppage led to delays in pick-up decisions. Lower advertising revenues at the ABC Television Network were primarily due to decreases in news, daytime and primetime. The decrease in primetime was due to lower ratings, the company said in describing the quarter.
Operating income at Cable Networks decreased 8% to $1.1 billion for the quarter driven by a decrease in revenue recognized related to annual programming commitments and lower advertising revenue at ESPN, partially offset by the benefit of contractual rate increases and subscriber growth on affiliate revenue. The decrease in revenue recognized related to annual programming commitments was due to the timing of sports programming. The decrease in advertising revenues was due to a decrease in units sold, partially offset by higher rates, the company said of the cable side.
“We’re comfortable with how the Upfront is playing out,” Disney CEO Bob Iger told analysts.
CFO Tom Staggs said ad sales trends “appear to have stabilized. He said the company will likely sell less of its inventory in the Upfront than in previous years, but echoed the line that ABC is “comfortable” with pricing.