ABC, ESPN Strength Drives Walt Disney Co. Earnings

Media Networks' Revenue Increases 18%

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NEW YORK (AdAge.com) -- ABC and ESPN drove a strong quarter for parent company Walt Disney Co. The revenue of the two networks jumped 18%, underscoring the high demand for ABC airtime. The latest Disney financial results bode well for ABC's imminent upfront negotiations.
Operating income from Disney Media Networks was up 20%.
Operating income from Disney Media Networks was up 20%.

Net income up $76M
Disney's net income for the second quarter was $733 million compared with $657 million for the year-ago period. Operating income from Disney Media Networks -- the arm of Disney that encompasses the company's TV, cable, radio and Internet properties -- was up 20% to $969 million, driven largely by the broadcasting segment.

Disney's chief financial officer, Thomas Staggs, told analysts yesterday that ABC's second- and third-quarter cost-per-thousand pricing "were double-digit percentages above upfront levels."

When asked about predictions for the upfront, Disney CEO Robert Iger said he expected more advertisers to signal interest in cross-platform opportunities and added that he didn't think the upfront would open until after Memorial Day weekend.

Later, Mr. Iger outlined the growing importance of the Web to the company, reporting Internet revenue of $500 million, without theme-park-related activity. Mr. Iger said the company's online strategy would focus on building out the Web sites of ABC, ESPN and the Disney Channel.

'Another marketing opportunity'
"Our recent decision to provide a number of ABC's top programs including 'Lost' and 'Desperate Housewives' on ABC.com is a clear example of our strategic direction on ABC.com," Mr. Iger said. "We are extending the broadcast economic model to the Internet as these programs are ad-supported and free to consumers. For advertisers, this complementary platform provides another marketing opportunity which we think offers great potential for new revenue growth."

Mr. Iger declined to reveal the number of visitors to ABC.com's streaming program pilot, though he did indicate ABC.com's streaming initiative will continue after the test period ends in June. He said new programs would replace the shows currently on the site and that ABC was limited in its technical ability to offer more than a few series at one time.

The company is also projecting that two shows, "Lost" and "Grey's Anatomy," could contribute more than $1 billion in operating income over the next five years. The projection is based on current ratings and includes potential syndication revenue.

Ready for some football
ESPN, meanwhile, is currently selling its new "Monday Night Football" product, which it acquired last year from the NFL and inherits from sibling ABC.

Mr. Iger was also asked about any potential merger and acquisition activity from Disney. He responded, "I think it is safe to assume that if we see an opportunity to invest, whether it is to buy or to build from scratch, we have got ample opportunity from a financial perspective to do that." He declined to comment on the potential disposal of Disney's share in E! Entertainment. The Hollywood-themed cable channel is part owned with Comcast Corp.

Disney also closed its $8 billion animation studio Pixar, which is set to release the movie "Cars." Operating profit at the studio fell 39% during the second quarter while sales fell 22%.
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