Content

Cable Nets Aren’t 'Lost’

10/24/2004 8:00 PM Eastern

Despite strong ratings gains at its broadcast-television unit, earnings growth at the Walt Disney Co. is again expected to be driven mostly by gains at the cable networks — ESPN, ABC Family and Disney Channel — analysts said last week.

Disney’s ABC broadcast network, once a distant fourth among the big broadcasters, has received a major ratings bump in the past month with successful new series like Desperate Housewives, Lost and Wife Swap.

Entertaining Results
How the media conglomerates’ programming units stack up:
Disney
Revenue Cash Flow
4Q03A 4Q04E 4Q03A 4Q04E
Cable Nets $1,419 $1,612.4 $377 $491.9
Total $7,326 $7,456.4 $872 $878.3
Fox Entertainment
Revenue Cash Flow
1Q04A 1Q05E 1Q04A 1Q05E
Cable Nets $596 $626 $143 $199
Total $2,758 $2,817.3 $684 $713.1
Viacom
Revenue Cash Flow
3Q03A 3Q04E 3Q03A 3Q04E
Cable Nets $1,465 $1,641 $661 $744
Total $6,600 $6,925 $1,630 $1,609
Dollars in millions
SOURCE: Company reports, and Banc of America Securities and Prudential Equity Group estimates.

ROBUST GROWTH

But reports from Prudential Equity Group media analyst Katherine Styponias and Banc of America Securities analyst Doug Shapiro indicated Disney’s fiscal fourth quarter would only include about two weeks of those popular series’ results. Still, they expect robust revenue and earnings growth at Disney, mainly because of continued gains by its cable networks.

In a report, Shapiro estimated Disney would report overall revenue growth of 2%, to $7.5 billion, and cash-flow growth of 1%, to $818 million, in the fiscal fourth quarter. Earnings per share are expected to be a solid 16 cents.

Styponias’s overall estimates for the quarter were slightly higher — 3% revenue growth and 4% operating income growth.

Both analysts point to bright spots in the cable segment.

Shapiro expects the entertainment giant’s results to be a mixed bag: theme parks are expected to be down, because of recent hurricanes in Florida, while filmed entertainment will continue to reel from a string of box-office disappointments. The cable segment is expected to shine, though, showing 14% revenue growth and 30% cash-flow growth in the period.

Styponias was equally optimistic — she expects cable net revenue to be up 15% and operating income up 31% in the period.

The same holds true for other media conglomerates expected to release financial results in the coming month, Fox Entertainment Group and Viacom Inc.

Shapiro forecasts revenue growth of 2% (to $2.8 billion) and cash flow growth of 4% (to $713 million, up from a previous estimate of a 7% decline) in the fiscal first quarter for Fox Entertainment, largely because of gains in cable.

BIG GAINS AT FOX

He predicts the Fox cable networks will report 16% revenue growth and 32% cash-flow growth in the period. Those results, he wrote, reflect continued advertising momentum and operating leverage at Fox News Channel, as well as ratings gains at FX — the cable network showed year-over-year gains among adults ages 18 to 49 and total households, up 39% and 22%, respectively.

Fox News, fueled by political campaigns, increased household delivery 82% in September and 38% during the quarter, compared to 31% and 17% growth during the month and quarter at CNN.

At Viacom, Styponias wrote that revenue should rise 5% and operating income before depreciation and amortization (OIBDA) would decline 1%, primarily because of weak performance at its radio stations, filmed entertainment and video retail segments.

Cable networks should be strong in the quarter, Styponias added — delivering 13% OIBDA growth on 12% revenue growth. One highlight: Spike TV ratings rose 13% in primetime.

September