DIS Walt Disney Co

By Ben Fritz and Imani Moise 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 7, 2018).

Walt Disney Co. will charge $4.99 a month for a new ESPN online service as it takes it first step into the digital future.

Chief Executive Robert Iger announced the pricing plans for ESPN Plus Tuesday as the media giant also returned to sales growth after two quarters of declines. Profitability was tempered, however, as declines in cable-TV subscribers continued.

Launching new direct-to-consumer digital businesses is Mr. Iger's top priority in the coming years. It's the reason Disney paid nearly $2.6 billion for majority control of technology company BamTech and in December agreed to spend $52.4 billion on key assets of 21st Century Fox Inc. (Fox and Wall Street Journal publisher News Corp share common ownership.)

The first such launch will be ESPN Plus. Mr. Iger said on a conference call with analysts it will be part of a revamped ESPN app to be released this spring. The app will feature news and other ad-supported content along with feeds of the ESPN channels for cable subscribers and additional content -- such as professional baseball, soccer and hockey games -- for those who pay for ESPN Plus.

Disney has traditionally produced less content than competitors and sought to make more from each of its films and cable networks. But the company will need more content for its new digital services, including a Disney-branded one launching in late 2019, and for Hulu, of which it would become majority owner if the Fox purchase closes, said Mr. Iger. That's a key reason Disney is buying Fox's film and television studios.

In addition, Disney on Tuesday announced plans to produce a new Star Wars movie series from David Benioff and D.B. Weiss, creators of the "Game of Thrones" television show. They will likely arrive in the 2020s, as will a new Star Wars trilogy in development from Rian Johnson, director of December's "Star Wars: The Last Jedi."

Disney is also working on "a few" Star Wars television series for its subscription video service, said Mr. Iger.

Though Disney is planning substantial investments for ESPN Plus, Hulu and the new service, Mr. Iger said the company will still likely produce less content than the prolific Netflix Inc. "We're not necessarily going to go in the volume direction Netflix has gone because we have this unique brand proposition," he said, arguing that Marvel, Star Wars and Disney are uniquely attractive to consumers.

The fast move to digital services comes as sales in Disney's television business, its largest, were essentially flat at just over $6.2 billion in the quarter ended Dec. 30, the first on its fiscal calendar. Among the reasons were the integration of BamTech and higher losses at Hulu. Chief Financial Officer Christine McCarthy said Hulu's losses this fiscal year will be about $250 million higher than the prior year due to investments in content, including series from Disney and co-owners Fox and Comcast Corp.'s NBCUniversal.

The segment was helped by a 1% increase in cable network revenue to $4.5 billion, as contractual payments from cable and satellite operators grew and content costs fell. The total number of subscribers to Disney's cable networks was down 3%, however, which the company said was a slight improvement in the rate of decline.

Advertising revenue at ESPN, the company's largest cable network, was down 11%, due in part to the mix of college football playoff games.

Disney's ABC broadcast business experienced a 3% drop in revenue to $1.75 billion. Viewership was down, as was political advertising.

Disney's theme parks business grew most during the quarter, with revenue up 13% to $5.15 billion and operating income up 21% to $1.35 billion. Its domestic theme parks continued to perform better and Disneyland Paris enjoyed its third straight profitable quarter, the beginnings of a turnaround following Disney's move to take control of the long-troubled park.

Overall for the quarter, Disney reported a profit of $4.42 billion, or $2.91 a share, up from $2.48 billion, or $1.55 a share, a year earlier. Revenue rose 3.8% to $15.35 billion.

The quarter was boosted by a $1.6 billion one-time benefit related to the recently enacted tax law. For the fiscal year, Ms. McCarthy said Disney's tax rate will be 24.5%, since one quarter took place before the new law with its 21% rate took effect.

Disney stock closed up 2.6% before financial results were released and were up 1% in after-hours trading.

Write to Ben Fritz at ben.fritz@wsj.com and Imani Moise at imani.moise@wsj.com

(END) Dow Jones Newswires

February 07, 2018 02:47 ET (07:47 GMT)

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