ESPN Powers Disney Q1 Results

Driven by record Monday Night Football ratings and a strong slate of college gridiron matchups, ESPN saw its fiscal-year Q1 ad sales revenue increase by “mid-single digits” over the year-ago figure, a boost that went a long way toward improving the overall performance of Walt Disney Co.’s media networks division.

For the three-month period ended Dec. 31, ESPN saw its prime-time deliveries grow 8 percent, as the network averaged 2.3 million total viewers. Per Nielsen ratings data, ESPN also posted gains among the two major TV demos, bettering its standing among adults 25-54 by 8 percent (1.12 million), while growing its average nightly draw of viewers 18-49 by 6 percent (1.11 million).

While analysts had anticipated modest results for Disney’s TV unit, an improving advertising marketplace and higher affiliate fees at ESPN helped spur an 8 percent rise in revenue at the company’s cable networks, which took in $2.65 billion in FYQ1. Sales topped earlier Barclays Capital projections by some $70 million.

ESPN, Disney Channel and the other Mouse House cable nets posted a 5 percent increase in operating income, notching $544 million.

Growth at the broadcasting unit was muted, as lower prime time ratings at ABC and a decrease in average CPMs led to a decline in ad sales revenue. This despite scatter coming in more than 20 percent above upfront levels, a juxtaposition that underscores how debased broadcast CPMs were during last year’s bazaar, and the sheer volume of inventory that was held back.

All told, profit from operations at the TV unit grew 11 percent to $724 million, on revenues of $4.18 billion (up 7 percent versus the prior-year period).

In the current quarter, ad trends continue to look promising, said Disney chief financial officer Jay Rasulo. “So far in Q2, scatter pricing for ABC is running almost 30 percent above upfront levels,” Rasulo told investors. “Ad sale pricing at ESPN is up mid-single digits from the prior year; however, advertisers continue to make their purchases very close to air dates, which limits our ability to provide longer-term trends.”

Disney president and CEO Bob Iger said that while the marketplace “is not as strong as [what] we saw back before the market fell apart in the latter part of 2008,” he added that there has been increased activity from categories like telecom and technology. On the local stations side of the ledger, Iger said that ABC affiliates have seen “renewed activity among autos, both domestic and foreign.”

In a Q&A session with analysts, Iger said he was ready to push for retransmission consent dollars. “We are pretty resolute [on retrans] because we know the value of our stations and their importance to their local markets,” Iger said. “But we will do whatever we can through negotiation to avoid pulling our signal.”

Iger noted that ESPN is not mired in any major carriage negotiations, and as such there was little to be gained by offering his take on how future affiliate deals would pan out. That said, ESPN’s sub fee is north of $4 a pop per month, making it far and away the most pricey ad-supported cable network on the dial.

“Clearly our investment in ESPN’s programming is paying off and we’re delivering more value to advertisers and more value to distributors,” Iger said. “So we think that our position with ESPN going into a new round of negotiations is actually quite solid because of the value that we’re generating. Our distributors do quite well with ESPN. It generates more [local] advertising revenue then any other channel in the cable universe.”

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