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Disney Dogged by ESPN Woes, With Fewer Viewers and Higher Costs

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Credit: Michael Nagle/Bloomberg
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Walt Disney Co. failed to assuage investor concern about its struggling cable division when it released its latest results on Tuesday, saying profit in the business slumped last quarter as ESPN continued to lose subscribers and spent more to televise games.

Profit at Disney's ABC broadcast division rose 14%, fueled by fees from pay-TV providers, sales of programs to other outlets and lower marketing costs.

But revenue for the cable division totaled $4.06 billion, trailing the $4.2 billion average of analysts' estimates. And the unit's profit slid 3%, the company said, a reflection of higher expenses for NBA games and college football. Disney shares fell in late trading.

The results show Disney struggling to get a handle on the troubles at its largest business -- TV programming. The owner of ESPN and ABC has seen ratings slide as audiences watch more video online, while sports leagues keep demanding more money. The company is paying $600 million more for rights to National Basketball Association games alone, and a shift in college football schedules also lifted expenses.

The cable unit's struggles overshadowed positive results in other divisions. The entertainment company said Tuesday total profit rose to $1.50 a share in the fiscal second quarter, beating the $1.41-a-share average of analysts' estimates. Revenue at the Burbank, California-based company rose 3% to $13.3 billion, slightly behind expectations.

Disney shares fell 1.7% to $110.20 in extended trading. The stock rose 0.6 percent to $112.06 at the close in New York and is up 7.5 percent this year.

Problems in the cable division led Disney to warn of modest profit growth this year. Ad sales have slumped at competitors including Time Warner and Viacom. Last month, ESPN eliminated about 100 positions, including many on-air personalities.

Disney's namesake theme parks were buoyed by the new Shanghai Disney Resort, which opened on the Chinese mainland last June. Profit rose 20 percent to $750 million in the division, which is expected to account for as much as two-thirds of Disney's earnings growth over the next two years as new attractions draw more guests. The company's newest attraction, Pandora -- the World of Avatar, opens May 27 at Disney's Animal Kingdom in Orlando, Florida.

Film profit grew 21% to $656 million, driven by the "Beauty and the Beast," the company's only release in the quarter. The live-action remake of the company's 1991 animated hit has grossed $1.19 billion in theaters worldwide since its March 17 release, underscoring the success of the company's strategy of redoing past films for contemporary audiences. Revenue for the studio was down 1%.

-- Bloomberg News

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