Disney Q4 Revenue Misses by $400 Million as ESPN Subscribers Plummet

Company has fallen short of expectations two out of the last three quarters

The Walt Disney Company's logo on the iconography of a dollar bill
waltdisney earnings

The Walt Disney Company reported fourth-quarter revenue of $13.1 billion and earnings of $1.10 a share after the close of markets Thursday, falling short of analyst estimates as its TV business continues to face headwinds, especially lower ad sales at ESPN and a drop in subscribers.

Analysts had forecast $13.5 billion in revenue and earnings of $1.16 a share on average.

While Disney’s superior box office performance helped outweigh some of its cable struggles in the previous quarter — helped by global smash hits like “Finding Dory” and “The Jungle Book” — its third quarter slowdown at the multiplex didn’t facilitate that happening again. Disney’s highest-grossing movie released between July and September was “Pete’s Dragon,” which made $141 million worldwide.

That’s why Disney failed to beat expectations for just the second time in five years — and second time in three quarters. Disney classifies the three months ending Oct. 1 as its fiscal fourth quarter.

“We’re very pleased with our performance for the year, delivering the highest revenue, net income and earnings per share in Disney’s history,” Disney Chairman and CEO Bob Iger said in a statement accompanying the earnings. “Fiscal 2016 was our sixth consecutive year of record results, highlighted by the opening of Shanghai Disney Resort, the phenomenally successful return of Star Wars, and our studio’s record-breaking $7.5 billion in total box office. We remain confident that Disney will continue to deliver strong growth over the long-term as we further strengthen our brands and franchises, our technological capabilities, and our international presence.”

Even though the Mouse House has already become just the second studio ever to earn more than $6 billion worldwide in a calendar year and is on pace to set a record for market share, Disney’s books rely a lot more on the small screen.

And its sports network, ESPN, is coming off its worst month ever, shedding 621,000 subscribers who opted not to pay their cable provider an estimated $7 for the network for the month of November, according to a Nielsen report, which Disney initially disputed – and Nielsen subsequently confirmed.

Disney’s cable networks are its key profit driver: that division — of which ESPN is the dominant entity — accounted for 29 percent of its revenue and 47 percent of its profits last quarter.

However, ESPN has shed 11.3 million subscribers over the last five years, including 4.2 million in the past year alone. The network peaked at 100.1 million subscribers in 2011 and now has 88.8 million, which equates to hundreds of millions of revenue per year. For the fourth quarter, cable network revenue fell 7 percent year-over-year, while operating income plunged 13 percent.

At the same time, rights fees for the live sports ESPN specializes in broadcasting continue to go up, as there’s plenty of competition for one of the few pieces of programmed television that still delivers monster ratings. ESPN will pay $7.3 billion for content next year – the biggest price tag among all media companies.

In the earnings release, Disney cited a drop in advertising revenue and higher programming costs as major contributors to ESPN’s struggles.

And although Disney’s film studio and theme parks are thriving, ESPN concerns have dragged down Disney’s stock price. While the S&P 500 is up 6.2 percent year-to-date, Disney’s shares have dropped 9.2 percent over the same time period.

Disney will discuss the earnings on a conference call at 5 p.m. ET.