Monday, November 30, 2015

With Audience Losses, Disney Faces Challenges

ESPN’s declining subscriber base -- down 7 million in two years -- is presenting owner Walt Disney Co. with tough choices, reports Bloomberg News.

The company said late Wednesday in an annual regulatory filing that its flagship ESPN sports channel lost 3 million subscribers in the latest fiscal year, finishing with 92 million, according to estimates from Nielsen. Other Disney networks also registered declines.

If Disney, the world’s largest entertainment company, can’t halt or slow the decline at its flagship sports network, subscriber and advertising dollars will shrink and undermine the company’s single largest source of profit. ESPN is burdened by costly sports-rights contracts, such as for Monday Night Football, that make it crucial to increase revenue from viewers and advertisers. Other media companies, like Time Warner Inc.’s HBO and CBS Corp., have responded to pay-TV audience losses by introducing Web-based services for consumers who don’t subscribe to cable or satellite.

With fewer customers, Disney will earn less from pay-TV partners such as Comcast Corp. and Dish Network, which pay fees to carry channels based on subscriber numbers. Wells Fargo Securities analyst Marci Ryvicker, in a note Friday, calculated that the loss in subscribers in Disney’s sports networks cost the company $700 million in fee revenue and $200 million in earnings before interest, taxes, depreciation and amortization.

At the same time, a standalone ESPN Internet channel, while opening the network to millions of potential viewers who don’t subscribe to pay TV, could hasten the unraveling of the cable bundle, threatening the network’s revenue and other company-owned outlets including the Disney Channel, ABC Family and A+E Networks.

ESPN has been the biggest profit contributor for the Burbank, California-based Disney for years. It’s the largest piece of a cable networks division that delivered $6.8 billion in operating profit in the last fiscal year, or 46 percent of the company’s total. The cable networks contributed 32 percent of Disney’s revenue.

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