Disney Reports Lower Income, Change in Streaming Philosophy

The Walt Disney Company reported flat revenues and lower income in its most recent quarter on Monday, as transitions within the broadcasting segment of its business continue to produce uncertainty among investors.

Total revenue at $14.2 billion was essentially unchanged from last year. But, segment operating income declined 10%, mostly because of a 23% decline in operating income at cable networks like ESPN and the Disney Channel.

The Walt Disney Company Q3 results by segment. In $,000s.

While revenue at the cable networks declined by 3% versus the prior year, operating income was more severely affected by increased programming costs as well as restructuring expenses, including severance and contract termination expenses. The 3% revenue decline was an acceleration from the year-to-date decline of 1%.

Disney has had to adapt to a changing landscape as have other media companies, where the high cost of cable and satellite television coupled with the wide availability of streaming services has caused many U.S. households to stop paying for cable services. In response, Disney has invested in BAM Technologies, originally developed as a streaming service for Major League Baseball, as a means of reaching consumers directly with their content rather than going through a cable or satellite intermediary.

In prepared remarks in the press release, Disney CEO Bob Iger stated:

“Today we announced a strategic shift in the way we distribute our content. The media landscape is increasingly defined by direct relationships between content creators and consumers, and our control of BAMTech’s full array of innovative technology will give us the power to forge those connections, along with the flexibility to quickly adapt to shifts in the market. This acquisition and the launch of our direct-to-consumer services mark an entirely new growth strategy for the Company, one that takes advantage of the incredible opportunity that changing technology provides us to leverage the strength of our great brands.”

The announcement also meant that with direct to consumer offerings in the works – for ESPN and Disney related content – content that had been distributed through Netflix would be pulled. That has caused Netflix shares to decline by 2% in today’s trading – recovering from a 7% decline initially in after-hours trading yesterday when Disney made the announcement.

Disney shares are down more than 4% today on the results.

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