Walt Disney Co. reported a smaller-than-expected rise in quarterly revenue and lower profit from its cable TV operation as it grapples with higher costs at its cash-cow sports network ESPN.
The world’s biggest entertainment company’s shares fell 3.2 percent after the bell on Tuesday, Reuters reports.
Disney’s quarterly profit beat analysts’ estimates as the company benefited from the success of its latest fairytale adaptation, Beauty and the Beast, and growth in its theme park business, the news agency said.
Revenue in the theme park business rose 9.5 percent to US$4.3 billion in the latest quarter, largely helped by the opening of Shanghai Disney Resort in June last year.
Analysts had expected revenue of US$4.27 billion, according to FactSet.
However, operating income for the cable division fell nearly 3 percent to US$1.79 billion, Reuters said.
The company blamed the decline to higher programming costs at ESPN due to the shift in timing of College Football Playoff bowl games and contractual rate increases for NBA programming.
Disney has been stepping up efforts to stem subscriber losses at ESPN as younger viewers move away from traditional pay television packages, a trend known as “cord-cutting”.
Recent earnings reports have raised concern that the pace of cord-cutting is picking up.
MoffettNathanson analysts calculated that pay TV distributors lost 762,000 subscribers from January through March, the worst first-quarter result on record.
Disney is working to launch an ESPN subscription streaming service and bought a 33 percent stake in video-streaming firm BAMTech for US$1 billion last year.
The future of ESPN has been in focus since August 2015 when chief executive Bob Iger acknowledged “modest” subscriber losses at the sports network.
“ESPN continues to be the problem – at this point people are thinking maybe they should just sell it,” said Ivan Feinseth, an analyst at Tigress Financial Partners.
ESPN’s television unit laid off 10 percent of its 1,000 on-air staff, Reuters reported last month, citing a source.
Revenue from its cable business, which includes ESPN and the youth-focused Disney Channels, rose 2.7 percent to US$4.06 billion.
Analysts on average were expecting the business to report revenue of US$4.09 billion, according to financial data and analytics firm FactSet StreetAccount.
Disney’s overall revenue rose 2.8 percent to US$13.34 billion, but missed analysts’ estimate of US$13.45 billion, according to Thomson Reuters I/B/E/S.
Net income attributable to the company rose to US$2.39 billion, or US$1.50 per share, in the second quarter ended April 1, from US$2.14 billion, or US$1.30 per share.
Investors breathed a sigh of relief after Disney said in March that it would extend Iger’s term to July 2019.
Excluding certain items, the company earned US$1.50 per share, beating the analysts’ average estimate of US$1.41 for the second quarter.
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