Welcome to the latest episode of the Full-Court Finance podcast from Zacks Investment Research where Associate Stock Strategist Ben Rains quickly breaks down Disney's DIS recent quarterly financial results before he dives into everything investors need to know about ESPN, from its cord-cutting problems to its streaming future beyond ESPN+.
Disney's proposed $71.3 billion purchase of key Twenty-First Century Fox FOXA assets has already been approved by shareholders and U.S. Justice Department authorities. This purchase is expected to bolster Disney's stand-alone streaming service that is expected to roll out in late 2019, as the historic entertainment firm aims to take on Netflix NFLX , Amazon AMZN , and soon enough Apple AAPL . Investors should note that while Disney looks set to gain majority control over Hulu through its Fox deal, the company will have to divest Fox's 22 regional sports networks as part of the approval.
Therefore, Disney won't be able to improve the somewhat struggling ESPN with an influx of hugely popular regional sports networks. With that said, Disney Media Networks unit, which includes ESPN, saw its quarterly revenues climb by 5% to reach $6.16 billion-revenues were up 3% to $18.54 billion for the first nine months of Disney current fiscal year.
More specifically, Cable Networks revenues popped 2% to hit $4.19 billion. However, the key division's operating income fell 5% to $1.38 billion. Luckily, ESPN's success helped offset these declines.
The sports media powerhouse did, however, see its advertising revenues slip and its costs go up. These two problems are unlikely to go away or reverse anytime soon, which is why the company has started to invest so heavily in its new ESPN streaming platform.
Disney launched ESPN+ in April at a $4.99 per month price point. The service is nowhere close to a replacement for ESPN since it does not offer the company's most popular live sports. But, ESPN has spent millions to land UFC fights and just recently secured the rights to a major European soccer league, which just landed the world's most famous athlete itself.
ESPN+ also features a ton of Major League Soccer coverage. The company's soccer push looks poised to pay off in the long-run as the sport grows in popularity. ESPN has also invested in the rise of esports, which includes a new partnership with Activision Blizzard's ATVI Overwatch League.
Looking ahead, ESPN should be able to thrive in a streaming environment once advertisers, fans, and the major sports leagues fully embrace the new age of entertainment.
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