EARNINGS CALL

ABC Ad Rev Rose Ahead Of Virus Impact

In Disney’s fiscal second quarter, broadcasting revenues increased 49% to $2.8 billion, largely due to the consolidation of assets acquired from 21st Century Fox, but also due to gains at the legacy broadcasting operations. In addition to the previously mentioned ad sales gain, ABC also benefitted from higher affiliate revenue (retrans for the O&O stations and network reverse-comp). But things are much more complicated in this current quarter.

It may seem like ancient history now, but Disney’s broadcasting advertising revenues for ABC and the O&O stations were up 3% in the fiscal second quarter ended March 28, Disney Senior EVP-CFO Christine McCarthy told Wall Street analysts on the company’s quarterly conference call Tuesday. That has changed, of course, for the current quarter, with ad sales pacing lower, although broadcasting is not being as heavily impacted as ESPN on the cable network side.

The lack of live sporting events is having the greatest impact on ad sales, McCarthy said of ad pacings for Disney’s broadcast and cable businesses. But she also noted pullback by advertisers in categories most impacted by the pandemic. “We’ve seen declines in demand from industries like movie studios, restaurants, travel/tourism, retail, domestic auto — those are all the things we’re seeing pullbacks in,” she said.

“But on the other hand, we see some advertisers opportunistically increasing their spend. Some of those industries are things like financial services, tech/telecom, you know the DTC [direct to consumer] or streaming services, and also consumer packaged goods,” McCarthy explained. “When you net all of that, the net impact is what we are expecting is a significant decline in ad sales. And we’ll see it more at ESPN, due to the lack of live sporting events, than we will at the broadcast network,” she concluded in answer to an analyst’s question.

Earlier, new Disney CEO Bob Chapek had reaffirmed the company’s long-term commitment to sports. “In terms of the future rights and the business models, we think that live sports remain incredibly valuable to us and we continue to have an interest in live sports rights, given the unique slate of assets that we own, with ESPN, ESPN+ and ABC. We’re going to do that as we always have done, in a very disciplined manner,” Chapek said of bidding for sports rights. He also noted changing trends: “We think we want to make the evolution with the consumer as they go from linear to digital.”

In the fiscal second quarter, broadcasting revenues increased 49% to $2.8 billion, largely due to the consolidation of assets acquired from 21st Century Fox, but also due to gains at the legacy broadcasting operations. In addition to the previously mentioned ad sales gain, ABC also benefitted from higher affiliate revenue (retrans for the O&O stations and network reverse-comp). Broadcasting operating income rose 53% to $397 million.

Much of the company’s conference call focused on the Parks, Experiences and Products segment, where the closing of Disney’s theme parks, cruise line and retail stores was said to have had a $1 billion impact on operating income during the quarter. All remain closed, although Shanghai Disneyland is set to reopen on May 11 at reduced capacity to protect guests and employees from infection. Chapek declined to speculate on when other parks might reopen. He said the cruise business is likely to be the last to return, but he insisted that Disney customers trust it more so than other cruise lines to ensure their safety.

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Because of the unknowns about how the COVID-19 pandemic will play out, McCarthy declined to give any guidance on future financial results. Disney’s board has canceled the next scheduled dividend payment to shareholders, with future dividend plans to be dealt with later.

Disney has furloughed more than 100,000 employees, mostly at the theme parks. But McCarthy noted that the company is continuing to pay for their health coverage.


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