Sports Leads Disney’s Streaming Unit to Its First Quarterly Profit

In a call with investors that was otherwise a bit skimpy on the sports side of the ledger, Disney’s streaming unit recorded a profit for the first time in the quarter ended on June 30, while ESPN boasted a 17% hike in advertising revenue.

Speaking to investors during the company’s third quarter earnings presentation, Disney CEO Bob Iger spoke briefly about the new NBA rights deal—he said he sees “tremendous value” in the 11-year extension—and acknowledged that ESPN continues to have discussions with potential equity partners.

“I know I’ve sounded like a broken record, because I’ve talked about strategic partnerships for ESPN over the last number of quarters,” Iger said, when asked about the recruitment drive which began last summer. “The only thing I can say is, believe it or not, we’re still having conversations about it. We continue to believe that there may be opportunities to partner with others, particularly on the content side, and that’s why we’ve continued to explore that. But nothing more to add.” 

Iger declined to comment on the potential profitability of the new NBA deal, which extends Disney’s tenure as the league’s primary media partner through the end of the 2035-36 season. With an average rights fee of $2.6 billion per year, the Mouse House is on the hook for some $28.6 billion. The legacy deal, which expires after the 2025 NBA Finals, was valued at $1.5 billion per year.

On the streaming front, the division that comprises Disney+, ESPN+ and Hulu posted an operating profit of $47 million on the quarter, compared with a loss of $512 million in the year-ago period. (ESPN+ accounted for $66 million of that profit, offsetting a $19 million loss from the other brands.) That turn was slightly ahead of schedule, as Disney had expected the unit to creep into the black in the fourth quarter of this year. Revenue grew 15% to $6.38 billion.

While Disney did not provide a specific dollar amount, the company reported a 17% increase in ad revenue at its ESPN sports unit, a boost that was powered by a strong showing during the NBA Finals and the Stanley Cup playoffs. Domestic revenue grew 5% to $3.91 billion.

In lieu of the standard 20 minutes of earnings boilerplate, Disney issued 14 pages of “executive commentary” ahead of the call, allowing Iger and senior EVP and CFO Hugh Johnston to steam straight into the Q&A. Analyst queries were largely concerned with performance at the company’s theme parks, although a question about the potential impact the launch of Venu Sports might have on the linear TV business went unacknowledged. (This omission was likely inadvertent, a perhaps inevitable function of analysts trying to cram a half-dozen questions into their allotted call time.)

Earlier Wednesday morning, Johnston told Bloomberg TV that the “big winners” will continue to control U.S. sports rights, before noting that ESPN closed out the quarter with 49% market share of all sports consumption.

“[When] you combine our NBA rights, along with college football, along with the NFL, we’ve locked up sort of the most important sports to us, in terms of being big and quite popular, for an extended period of time,” Johnston said. “We feel good about where we sit.”

Johnston went on to note the strength of the advertising market, adding that the consumer packaged goods and tech categories are particularly strong. On the call, Iger characterized live sports programming as an “advertiser’s delight and an audience’s delight.”