While he attributes most of ESPN’s 12 million lost subscribers over the last six years to the cord-cutting movement, Disney chief executive Bob Iger said the attrition would be worse if not for the emergence of virtual MVPD services.
“The strength of the brand and consumer demand makes ESPN extremely attractive to new platforms and services entering the market, which has led to ESPN content being featured on a growing array of over-the-top services, including Sling TV, Hulu, PlayStation Vue, DirecTV Now and YouTube TV,” Iger told media investment analysts during Disney’s fiscal second-quarter earnings call Tuesday. (The transcript to the event was made available by Seeking Alpha.)
“Consumer response to these offerings is very encouraging,” he added. “The substantial growth we're already seeing makes us bullish on the future of these nascent offerings. Right now, they are a small part of the pay TV universe, but we believe they'll be a much bigger part of the business going forward. And from a per sub pricing standpoint, these new services are just as valuable to us as traditional platforms.”
Iger didn’t disclose how many subscribers the new virtual pay-TV services have rendered for beleaguered ESPN.
Disney’s second-quarter earnings were once again negatively impacted by ESPN.
The conglomerate’s cable network revenue rose by 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.