Walt Disney Co. set a record for profit in its most recent fiscal quarter but warned that dramatic changes in the television landscape could eat into earnings.
The Burbank company reported net income of $ 2.48 billion in the third quarter that ended June 27, up 11% from a year earlier. Revenue rose 5% to $ 13.1 billion.
But the world’s largest entertainment firm telegraphed to Wall Street on Tuesday that an increasingly fragmented television business could be a drag on cable TV profits, which for years have been a major driver for Disney’s financial performance.
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The crown jewel of Disney’s television business is ESPN, which commands the highest rates from pay-TV operators seeking to offer it to their customers.
Still, some consumers’ move away from expensive cable television bundles and embrace of new avenues for consuming content are starting to erode operators’ subscriber bases. A growing number of Americans are turning to streamlined TV packages that offer fewer channels, and others are embracing streaming services such as Netflix and Amazon Instant Video.
“We’re realists about the business and about the impact technology has had on how product is distributed, marketed and consumed,” Disney Chairman and Chief Executive Robert Iger said in a conference call with analysts. “We’re also quite mindful of potential trends among younger audiences in particular, many of whom consume television in very different ways than the generations before them.”
For years, nearly 100 million homes in the U.S. subscribed to a pay-TV service, via either a cable, satellite or telephone company. Now these operators are offering slimmed-down packages, which hurts Disney because the company has long relied on having ESPN and other premium channels such as ABC Family distributed to nearly all the pay-TV homes. Analysts have estimated that over the last few years, about 3 million fewer homes pay for all of the channels including ESPN.
But any erosion is expected to be modest. Last year, Disney forecast that its cable business’ operating income would grow by “high single digits” on a compounded annual basis from 2013 to 2016. Now, Iger said, it is expected to grow in the “mid single digits” range, in part because of “slightly less subscribers,” including some at ESPN.