Disney to Start a Sports Streaming Service -- but It's Not ESPN Over the Top

Company Takes Steps to Adapt TV Business to Changing Times

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Enchanted Storybook Castle during the opening day of Walt Disney Co.'s Shanghai Disney Resort in China on June 16.
Enchanted Storybook Castle during the opening day of Walt Disney Co.'s Shanghai Disney Resort in China on June 16. Credit: Qilai Shen/Bloomberg

Walt Disney Co. on Tuesday reported quarterly profit that beat analysts' profit projections, as strong performances from films including "Captain America: Civil War" and "Finding Dory" countered a challenging period for TV and consumer products.

Disney also said Tuesday that it will buy a minority stake in BAMTech, a technology and streaming company formed by Major League Baseball, and will start a web-based sports network under the ESPN brand as part of that deal. The new streaming sports network will not carry the same content as the existing ESPN cable networks, however.

The company will pay $1 billion in two installments, now and in January 2017.

Speaking to investors during an earnings call, Disney President-CEO Bob Iger said the goal was to roll out the ESPN-branded service "probably by the end of the year," before adding that the company in the near term would not be providing a hard and fast launch date.

Mr. Iger was similarly vague about the sort of content that would be available through the new service. "The goal is not to take product off ESPN's current channels, but to use sports that ESPN has already licensed that aren't appearing on the [linear TV] channels," he said, before name-checking college sports, baseball, tennis, rugby and cricket. "We view this as a complimentary service to what ESPN is already providing as part of their multichannel package, obviously in over-the-top, direct-to-consumer fashion."

Revenue at the world's largest entertainment company increased 9% to $14.3 billion in the period ended July 2, compared with estimates of $14.2 billion. Profit excluding some items rose to $1.62 a share, Burbank, California-based Disney said Tuesday in a statement. That topped the $1.61 a share average of analysts' estimates compiled by Bloomberg.

The results underscore the benefit of Disney's diverse portfolio. Profit at the film division is rising amid slower growth in TV, the company's biggest business.

Cable TV operating income rose 1% to $2.09 billion on stronger advertising and affiliated revenue at ESPN, but the subscriber declines at ESPN that first began worrying investors last year continued in the latest period. (According to Nielsen estimates for the month of August, ESPN now reaches 88.8 million households, down from 100.1 million homes just five years ago. Then again, with the highest carriage fee in the business -- $7.31 per subscriber per month, per RBC Capital estimates -- the network this year is on track to generate a staggering $7.79 billion in affiliate revenue alone.)

Profit at the ABC network and affiliated TV stations fell 6% to $282 million. Parks profit climbed 8% to $994 million. Film studio earnings soared 62% to $766 million. Income from consumer products and interactive dropped 7 percent to $324 million.

Disney has four of the top five films this year, including three that came out last quarter. The May 6 release "Captain America: Civil War" is No. 1, with worldwide sales of $1.15 billion, according to researcher Box Office Mojo. The live-action remake "The Jungle Book" has generated $941.2 million since its April debut, while "Finding Dory," the sequel to the 2003 hit "Finding Nemo," has taken in $871.6 million in foreign and domestic box office since its June 17 release.

Disney is taking steps to adapt its TV business to the changing times. Along with the BAMTech deal, the company said it will also be part of a new over-the-top video service planned by AT&T's DirecTV unit.

The quarter also marked a tumultuous one for the company's theme parks. In June, Disney opened its $5.5 billion Shanghai Disney Resort, the company's largest foreign investment. The same month a child died in an alligator attack at Disney's Orlando, Fla., resort. SeaWorld Entertainment reported a 7.6% drop in attendance last quarter, in part due to weakness in Orlando, and Disney said its domestic attendance also declined.

Earlier Tuesday, Euro Disney SCA, the company's resort in France, reported a 9.2% drop in quarterly revenue, citing security concerns in Brussels and Paris, labor strikes and poor weather.

-- Bloomberg News with Ad Age staff

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