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The Walt Disney Co. (NYSE: DIS) pulled in a pretty solid fiscal 2011 and FY Q4, but a number of challenges have emerged that could threaten the company’s cable and broadcast revenues over the next year: the impasse over contract talks between the National Basketball Association and the player’s union that has delayed the current season and the continuing weak economy. During this afternoon’s earnings call, Disney’s president and CEO Bob Iger, sought to minimize the two issues, noting that advertising is only 19 percent of the company’s total revenues.
Still, 19 percent is a big chunk, especially since ESPN’s strong performance helped Disney beat analysts’ expectations in FYQ4. In any event, while recent reports have suggested that both sides of the NBA lockout have made progress, Iger expressed little worry that even if the NBA season were to be completely canceled, ESPN would be able to run enough college basketball and football game to retain most advertisers’ commitments. Still, that seems like a stretch, and media buyers would probably demand give-backs.
“We deliver the male demographic that advertisers desperately want to reach,” Iger said.
Turning to the uncertain economy, Iger insisted that the scatter market looks strong. However, advertising activity has been slowing in the last few weeks, he acknowledged.
Iger’s confidence was also on display in discussing how video on demand, either online or through cable set-top boxes, have helped driver greater interest in the company’s programming.
“A few years ago, we were all worried about the effects of DVRs on advertising and ratings,” Iger said. “But with 42 percent penetration of DVR households in the U.S., the actual increase in ratings is remarkable. We can now sell against C3 ratings and maybe one day, we’ll sell against C7 ratings. It’s not detrimental, if anything, it’s enhancing ratings.”
When asked what inning the industry is in when it comes to broadband video, Iger laughed and said he still considers this “the pre-season.” “You’re going to see a lot more forms of SVOD and other devices for watching filmed entertainment and TV programming,” he said. Still, he doesn’t expect the broadband video business to provide anything more than incremental revenues for some time. “It will continue to grow, but it won’t approach 50 percent for many years, because the traditional business is still so strong.”
Instead, he sees e-commerce as the main source of Disney’s main digital growth, certainly by the time Iger’s contract as CEO ends in 2016. “When you talk about growth in digital platforms, it’s not just from Netflix,” Iger told the analysts on the call. “Our total digital revenue is around $1 billion. And that comes from a lot of different areas, not just video.”
Gaming and social are the other areas Disney has put enormous investment behind. But the company has lately taken a more cautious approach to social gaming since acquiring social game developer Playdom in the latter half of 2010.
“We purposely dialed back the number of game releases for a variety reasons,” Iger said. “We wanted to monitor the social games space more closely, and make sure our infrastructure was sound. The other reason was looking at the intellectual property implications” and how the mix of in-house and outside gaming development should look.
Disney will launch eight new social games in the next year, some which will come from existing Disney and Marvel brands and others that are represented by “original intellectual property.”