{"id":17478,"date":"2016-02-10T09:04:32","date_gmt":"2016-02-10T17:04:32","guid":{"rendered":"http:\/\/spijue.wpengine.com\/news\/costs-at-espn-hinder-disneys-force-ful-quarter\/"},"modified":"2016-02-10T09:04:32","modified_gmt":"2016-02-10T17:04:32","slug":"costs-at-espn-hinder-disneys-force-ful-quarter","status":"publish","type":"post","link":"https:\/\/www.juneauempire.com\/news\/costs-at-espn-hinder-disneys-force-ful-quarter\/","title":{"rendered":"Costs at ESPN hinder Disney’s Force-ful quarter"},"content":{"rendered":"

LOS ANGELES<\/strong> \u2014 ESPN, the sports network that drives Disney\u2019s profit engine, has hit a soft patch. Subscribers have fallen by about 7.2 million over the last three years, according to Nielsen, and it\u2019s coming off a round of layoffs. As more people cut the cord to watch programming online, its perch on top of the pay TV empire is looking unsteady at best.<\/p>\n

The network\u2019s troubles are a bellwether for one of TV\u2019s biggest challenges: the ever-increasing cost of sports rights and whether consumers want to keep footing the bill.<\/p>\n

The conundrum was reflected in Disney\u2019s quarterly earnings Tuesday. Even though \u201cStar Wars: The Force Awakens\u201d helped Disney\u2019s earnings soar 32 percent to a record $2.9 billion, its television profits slumped by 6 percent, in part due to increases in the cost of sports-broadcast rights. It was Disney\u2019s second profit decline in the TV segment in the last four quarters. Shares fell 3 percent to $89.48 in after-hours trading, the lowest level in more than a year.<\/p>\n

Major media companies have invested $130 billion in sports rights over the next several years, Morgan Stanley analyst Benjamin Swinburne said in a recent investor presentation. But the cost of those rights is increasing faster than the revenue those companies reap.<\/p>\n

Leading the pack of big spenders: Disney and its ESPN juggernaut, which accounts for an estimated 29 percent of those long-term contract rights, from \u201cMonday Night Football\u201d to the NBA playoffs. Should the ad market falter and the pay TV audience decline even faster than its current 1 percent a year \u2014 the \u201cbear case\u201d \u2014 Disney\u2019s overall profit growth rate for the next four years could be nearly halved, Swinburne said.<\/p>\n

Disney CEO Bob Iger sought to rebut worries on Tuesday\u2019s conference call, saying ESPN actually saw a mild uptick in subscribers after the quarter ended. (Nielsen put ESPN subscribers at 91.4 million in January, down from 94.5 million a year ago.) Iger surmised the improvement had to do with good sales of Dish Networks\u2019 Sling TV online bundle of channels, which includes ESPN for a relatively inexpensive $20 a month.<\/p>\n

\u201cThis notion that either the expanded basic bundle is experiencing its demise, or that ESPN is cratering in any way from a sub perspective, is just ridiculous,\u201d Iger said. \u201cSports is too popular.\u201d He said the company would be looking for more opportunities to sell ESPN into so-called \u201cskinny bundles\u201d that are cheaper than most pay TV packages today.<\/p>\n

ESPN\u2019s impact at Disney is huge because it leads the cable networks division that accounted for nearly half of Disney\u2019s operating income last year. Sports rights \u201cmay ultimately turn into more risk than reward,\u201d Swinburne said.<\/p>\n

There are plenty of signs that the cost of broadcasting sports is butting up against consumers\u2019 willingness to pay.<\/p>\n

After paying more than $8 billion for the rights to televise Los Angeles Dodgers baseball games in 2013, Time Warner Cable Inc. still hasn\u2019t reached deals with other distributors for the majority of L.A. homes. Distributors don\u2019t think fans will tolerate a price hike even though the dispute is about to drag into a third season.<\/p>\n

Last fall, Comcast dropped the YES Network that is home of New York Yankees baseball and Brooklyn Nets basketball, citing high costs and low viewership.<\/p>\n

And CBS announced last week that it would split the cost of broadcasting \u201cThursday Night Football\u201d games with NBC, in a move that could help CBS trim its losses on the deal by $100 million next season alone, by Swinburne\u2019s reckoning.<\/p>\n

All of these events point to trouble for sports rights buyers. These companies agree to pay sports leagues annual increases in multi-year deals, but are now looking at a steady decline in pay TV subscribers. As the biggest buyer of sports rights, ESPN bears much of that risk.<\/p>\n

\u201cThe tradeoffs being made to get these rights raise the question of how long this trend can be sustained,\u201d Barclays analyst Kannan Venkateshwar wrote in a recent report.<\/p>\n

Sporting events may attract large audiences, garner an outsized share of advertising revenues and offer a showcase for promoting other TV shows. But networks like ESPN still get a large majority of their revenue from fees paid by cable and satellite subscribers. According to SNL Kagan, about 78 percent of ESPN\u2019s $9.5 billion in net operating revenue excluding ad commissions came directly from subscriber fees last year.<\/p>\n

That\u2019s why any hint of a decline in subscribers hurts so much. It\u2019s also why Disney stock is down some 26 percent since November.<\/p>\n

___<\/p>\n

Follow AP Business Writer Ryan Nakashima at https:\/\/twitter.com\/rnakashi . His work can be found at http:\/\/bigstory.ap.org\/content\/ryan-nakashima<\/p>\n","protected":false},"excerpt":{"rendered":"

LOS ANGELES \u2014 ESPN, the sports<\/a> network that drives Disney\u2019s profit engine, has hit a soft patch. Subscribers have fallen by about 7.2 million over the last three years, according to Nielsen, and it\u2019s coming off a round of layoffs. As more people cut the cord to watch programming online, its perch on top of […]<\/p>\n","protected":false},"author":107,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_stopmodifiedupdate":false,"_modified_date":"","wds_primary_category":4,"footnotes":""},"categories":[4],"tags":[],"yst_prominent_words":[],"class_list":["post-17478","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts\/17478","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/users\/107"}],"replies":[{"embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/comments?post=17478"}],"version-history":[{"count":0,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/posts\/17478\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/media?parent=17478"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/categories?post=17478"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/tags?post=17478"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.juneauempire.com\/wp-json\/wp\/v2\/yst_prominent_words?post=17478"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}