Despite rising costs and declining subscribers, Walt Disney Co. CEO Bob Iger said he remains bullish on the future of ESPN.
Speaking on Disney’s earnings call with analysts Thursday, Iger was asked about slumping NFL ratings. “We’d love to see the rating higher, but we’re not expressing long-term concerns.”
ESPN has been under pressure with rising costs for sports rights and a decline in pay TV subscribers.
Disney’s fourth quarter earnings were impacted by the fact that there was an extra week in the quarter a year ago. That made comparisons with last year’s profits and revenue difficult particularly for Disney’s cable networks including ESPN.
Disney CFO Christine McCarthy said on the earnings call that the extra week cost Disney 14% in cable network group operating income. Disney reported a 13% drop in cable operating income.
At ESPN, ad revenue was down 13% because of three factors, McCarthy said. There was a significant decrease in daily fantasy sports advertising, the additional week a year ago and the impact of ad dollars going to Olympics programming.
McCarthy also said that Disney will have only modest earnings per share growth in 2017 and cited $600 million in additional NBA costs under a new rights agreement as one of the causes. Earings growth will be more "robust" in 2018.
But Iger said ESPN’s long term prospects were good. “We feel bullish about ESPN’s future,” he said.
Live sports remains popular, as evidenced by the huge ratings for the World Series, Iger said. He was encouraged about ESPN’s abilty to drive solid advertising and the prospect that new affiliate deals could improve its rate structure even more.
He added that while Disney has been candid about ESPN’s loss of subs, he thinks that new digital streaming distributors will give ESPN opportunities to reach millennial consumers who don’t currenty subscribe to cable. He called on Nielsen to add digital MVPD subscribers to its count, "That needs to happen on a much more timely basis than its been happening," he said.
On top of that ESPN will be using some of its sports rights to create a direct-to-consumer product in 2017 that will be powered by the technology of BAMTech, in which Disney has made a $1 billion investment.
"That’s a really interesting opportunity to create new product that is more user friendly,” he said. It will also give Disney the ability to mine data about its viewers, which will let it improve its advertising and customize the product for consumers.
Asked about the decline in primetime ratings for NFL football, Iger said, “We’re being patient . .. we continue to watch, but it’s too early to suggest we’re concerned.”
He noted that the NFL is still TV's highest rated programming and said the company was lucky to have a long-term rights deal locked up with the league.
Some factors contributing to lower football viewing could be the interest in baseball’s post season, as well as the political season, including debates that aired opposite NFL games, he said.
He added that it was important for the NFL to maintain the quality of its product and that some matchups and some popular teams weren’t as strong this season as they’ve been in the past. “That could just be an aberration,” he said.
Iger was also asked about the search for his replacement as CEO.
He said the process is ongoing and that he was confident the board would find “the right candidate, and the right candidate on a timely basis.”
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