Report: Traditional TV Is Now Disney's Weak Link

Disney’s traditional television business has gone from superhero to weak link in just a few short quarters. reports The Wall Street Journal.

Income from its TV networks has dropped faster than expected as the world’s largest entertainment company struggles to boost its share price and get its streaming-video business to profitability.

The situation presents a quandary for Disney. For the past 3½ years, the company has been subsidizing the losses that its streaming division has incurred by using cash earned from two other businesses: theme parks and so-called linear TV, which makes money from ad-sales revenue and cable subscription fees paid to networks such as ESPN, the Disney Channel and Freeform.

Disney in recent months has been trying to reduce its streaming losses by slashing costs, laying off workers and evaluating moves such as selling its flagship ESPN channel directly to cable cord-cutters.

In Disney’s most recent financial quarter, operating income from the linear TV segment fell by 35% to $1.8 billion, its sharpest year-over-year decline in at least three years. Operating income from Disney’s parks, experiences and products unit has exceeded that of the linear-TV business for two consecutive quarters for the first time since Disney launched its streaming business.

Disney Chief Financial Officer Christine McCarthy has said the downturn in the linear-TV business isn’t permanent and has affected rivals too, and that when the advertising market improves, so will Disney’s finances.

“Advertising is cyclical. I think everyone is pretty much down on advertising,” she said at an investor conference earlier this month. “But the fact of the matter is, advertising will come back. When the ad market does become more robust, we are very, very well positioned.”

The rapid deterioration of the linear-TV business points to more fundamental change in the kind of business Disney is, analysts say.