Disney’s second-quarter earnings are once again being negatively impacted by ESPN.
Cable networks revenues rose 3% to $4.1 billion, but operating income fell 3% to $1.8 billion due to profit decreases at ESPN, partially offset by increases at the Disney Channels and Freeform. Disney attributed the decrease at ESPN to higher programming costs, partially offset by affiliate and advertising revenue growth.
The rise in programming costs was pegged on a shift in the timing of College Football Playoff (CFP) bowl games and contractual rate increases for NBA programming. Last year, only one CFP game was aired in the second quarter, whereas four CFP games were aired this year. Affiliate revenues grew thanks to contractual rate increases, which helped to offset a decline in subscribers. Higher rates drove higher advertising revenue, a positive side effect of the CFP timing shift.
Meanwhile, Disney Channels and Freeform benefited from lower programming costs and higher affiliate fees. While subscribers fell for those networks as well, affiliate revenue grew due to contractual rate increases.
Disney/ABC’s broadcasting revenues also rose 3% to $1.9 billion, but operating income climbed 14% to $344 million thanks to higher program sales income, affiliate revenue growth and a decrease in prime-time marketing costs. Those factors helped to offset lower advertising revenue (hurt by lower network impressions and lower political advertising) and higher programming costs. Affiliate revenue growth benefited from contractual rate increases. Higher programming costs were due to a higher cost mix of programming and contractual rate increases for acquired content, according to a news release.
In all, media networks revenues rose 3% to $5.9 billion and segment operating income decreased 3% to $2.2 billion.
“Disney delivered another quarter of double-digit EPS growth, driven by the strong performance of our Studio and Parks and Resorts,” said Disney Chairman and CEO Bob Iger in a statement. “Our continued strong performance is a direct result of our proven strategic focus on great branded content, innovative technology and global growth. We’re pleased with our results in Q2 and remain confident in our ability to continue to deliver significant shareholder value over the long term.”
Disney also reported that equity in the income of investees fell sharply, down 42% to $88 million, because of a higher loss from Hulu, lower income at A+E Television Networks (A+E) and a loss at BAMTech. Disney said the decrease at Hulu was due to higher content, marketing and labor costs, partially offset by higher advertising and subscription revenue, and that the decrease at A+E was due to lower advertising revenue.