- Disney beat on both the top and bottom lines in Thursday’s earnings report.
- Management said it would continue to invest big in its sports channel ESPN and the network’s new streaming service, ESPN Plus.
- With more tech giants such as Facebook and Amazon bidding for top-tier sports streaming rights, an analyst says Disney will have a problem within a few years.
- Watch Disney trade live.
Disney is spending big money on sports programming, and it could be a problem as tech giants such as Facebook and Amazon enter the sports-streaming world.
In Disney’s quarterly results out Thursday, the company said that its total operating income increased 17% but that operating income from its cable networks dropped 6% because of the consolidation of BAMTech, a service ESPN purchased from Major League Baseball Advanced Media.
Those cost increases in sports programming could be troublesome, according to Pivotal Research Group.
“The problem will occur within a few years when Facebook, Amazon and presumably Google bid for top tier sports rights in a meaningful way,” Brian Wieser, an analyst at Pivotal Research Group, said in a note sent out to clients on Friday.
Facebook has been aggressively investing in live sports, and it has reached many high-profile streaming deals for events such as Major League Baseball games, World Surf League competitions, and Premier League soccer matches.
Similarly, Amazon has also won several streaming rights of high-level sports, such as National Football League games and Premier League matches in Britain. And Google’s YouTube has fought with Amazon for regional-sports TV markets.
Facing all this competition, Disney’s management told investors during Thursday’s earnings call that it would continue to invest big in its sports channel ESPN along with the network’s new streaming service, ESPN Plus, which has hit 1 million subscribers since debuting in April.
“The ESPN brand and ESPN business was so significant and so important to us that that should be our priority when we license sports to put it on ESPN,” CEO Robert Iger said. “ESPN will also be called upon to use some of its licensing capabilities to serve as ESPN+.”
CFO Christine McCarthy added, “The continued ramp up of ESPN+, which includes investments in sports rights, will have an adverse impact on operating income of about $100 million for the first quarter.”
More sports-streaming competition will lead to bigger investments, and lower margins, Wieser concluded. He has a price target of $95 for Disney — 20% above where shares were trading Friday.
Shares were up 3% on Friday and 7% this year.
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