- Disney beat on both the top and bottom lines.
- Management said it will continue to invest big in its sports channel ESPN and the network’s new streaming service, ESPN+.
- With more tech giants such as Facebook and Amazon bidding for top-tier sports stream rights, Disney’s problem will occur in a few years, analyst says.
- Watch Disney trade live.
In Disney’s quarterly results out Thursday, the company said its total operating income increased 17%, but that of its cable networks dropped 6%, due to the consolidation of BAMTech, a service ESPN purchased from Major League Baseball.
Those cost increases in sports programming could be troublesome, according to Pivotal Research Group.
Facebook has been aggressively investing in live sports, and has reached many high-profile streaming deals for events such as Major League Baseball games, World Surf League competitions, and Premier League soccer matches.
Similarly, Amazon has also won several streaming rights of high-level sports, such as National Football League games and Premier League matches in Britain. And Google’s Youtube has fought with Amazon for regional-sports TV markets.
“The ESPN brand and ESPN business was so significant and so important to us that that should be our priority when we licence sports to put it on ESPN,” CEO Robert Iger said. “ESPN will also be called upon to use some of its licensing capabilities to serve as ESPN+.”
CFO Christine McCarthy added, “The continued ramp up of ESPN+, which includes investments in sports rights, will have an adverse impact on operating income of about $US100 million for the first quarter.”
More sports-streaming competition will lead to bigger investments, and lower margins, Wieser concluded. He has a price target of $US95 for Disney – 20% above where shares are trading on Friday.
Shares were up 3% on Friday 7% this year.