Distribution fees up, ad revenues below expectations
ESPN is cutting its workforce, the latest Disney division to reduce staff.
“We are implementing changes across the company to enhance our continued growth while smartly managing costs,” the sports media giant said in a statement Tuesday. “While difficult, we are confident that it will make us more competitive, innovative and productive.”
The company would not say how many jobs are being eliminated, but they include unfilled positions. ESPN has about 7,000 employees worldwide, with about 4,000 at its headquarters in Bristol, Conn. The vast majority work behind the scenes.
Fees from distributors for ESPN grew faster than expected in the latest quarter, while ad growth came in below expectations because of smaller audience numbers.
ESPN also has seen costs increase with skyrocketing prices for the broadcasting rights to live sports. For instance, the 12-year deal announced in November to televise the new college football playoff system will be worth about $470 million annually. The current four-year contract to air the Sugar, Orange and Fiesta bowls along with the BCS title game is worth about $125 million per year.
Live sports have become increasingly valuable in an age of fractured audiences and DVRs. That drives up rights fees, but also makes the programming more appealing to advertisers and allows ESPN to try to charge more from cable and satellite operators.
While announcing cuts Tuesday, ESPN will still be expanding in other areas. Earlier this month, it revealed that it was forming a network with the Southeastern Conference. The new network will launch in August 2014 under a 20-year agreement.
In August 2011, Connecticut Gov. Dannel P. Malloy announced that ESPN would receive millions of dollars in state tax breaks with the construction of a digital technology building and the addition of at least 200 jobs over five years.
ESPN received a 10-year, $17.5 million state loan to build the digital centre.
Network spokesman Mike Soltys said the construction project was not affected by Tuesday’s cuts.
“Notwithstanding these changes, we remain on track to reach the increase in jobs that are set out in the goals in the ‘First Five’ program,” he said.
In April, Disney laid off about 150 people at LucasArts, the video-game making division of Lucasfilm, four months after acquiring the company behind Star Wars for $4.06 billion. Disney also laid off about the same number at the movie studio in April to cope with the decline in DVD sales as consumer habits shift to digital forms of home entertainment.
Still, Disney has been on a roll financially, beating or matching earnings per share estimates for the last eight quarters. After it reported a 32% gain in net income for its fiscal second-quarter earnings two weeks ago, more than a dozen Wall Street analysts raised their price targets on Disney stock to an average of nearly $72. Shares of The Walt Disney Co. were down 2 cents at $66.10 in midday trading Tuesday.
