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Programming Costs Hammer ABC Profits

For the three months ended July 1, ABC parent Walt Disney posted as sharp 28% slide in operating income for its broadcast network and stations division, dropping to $183 million. Profits fell even though revenues increased 8% to $1.6 billion.

ABC’s big problem is the nearly-complete failure of its new schedule last year. The network cancelled every single program launched last fall. As a result, it’s commissioned 15 new series for the new season, more than any other broadcast network, beating even the ailing NBC.

Those development costs hit in the third quarter.

The other big cost center is development of digital products, including online projects and the Disney Mobile cell phone line. That was partly offset by “mid-single digit” percentage growth in ad sales at the company’s TV stations.

By contrast, the company’s cable networks posted a strong quarter. Revenue increased 12% to $2.2 billion, which operating income jumped 15% to $969 million. That was artificially boosted a bit by the accounting treatment of some programming revenues at ESPN and the absence of last year’s writedown of a Latin American cable venture.

Overall, Disney’s results were very strong, with company-wide revenue increasing 12% to $8.6 billion and operating income soaring 32% to $2 billion. The biggest drivers were a rebound at the company’s film studio and theme park operations.

On a conference call with to discuss earnings, Disney CEO Bob Iger acknowledged discussions with Yahoo and Google about the company’s push into broadband video, but said that working a deal with such aggregators is difficult because they want too much control.

“We don't necessarily have to share with any third parties either our advertising revenue or our relationship with the customer,” Iger says.“And while we believe that there are opportunistic ways that we could get involved with all the portals in sort of specific or more narrow ways, I don't think you should really think that we're going to end up in a broad, sweeping partnership with one because our opportunities without them are pretty significant.”