By Lisa Richwine and Anya George Tharakan
(Reuters) – Walt Disney Co’s quarterly profit and revenue on Tuesday beat analysts’ estimates fueled by movie studio hits, and the media company said it was taking a stake in a streaming video technology company to sell more content directly to consumers.
Disney and other media companies are struggling with “cord cutting” consumers who abandon large bundles of channels sold by cable TV providers. In buying a 33 percent stake in video-streaming firm BAMTech for $1 billion, Disney is hoping to lure online viewers. It will begin with an ESPN subscription streaming service by year’s end.
The service will not, however, include any of the content that appears on ESPN’s TV networks, Disney said.
Disney has the option to acquire majority ownership in coming years in BAMTech, which was formed by Major League Baseball (MLB) and is separate from the league’s content business. The technology is lauded as some of the best in the industry and is used by HBO Now and the National Hockey League as well as baseball.
The investment will help “allay investors fears about Disney’s relevance in a world where content is delivered online,” Pivotal Research Group analyst Brian Wieser said.
“That said, I think it doesn’t do anything specifically to allay fears of unbundling” of cable networks,” he said.
Disney Chief Executive Bob Iger described the coming ESPN online service as complementary to its TV channels. Programming will include Major League Baseball and National Hockey League games already licensed to BAMTech, he said.
“Our goal is to ensure that our brands, notably ESPN, remain strong, vital and relevant in a totally changed media landscape,” Iger said of the investment.
For the June quarter, Disney’s movie and theme parks divisions topped expectations, although a rise in cable networks revenue and operating profit was slightly below Wall Street targets, according to FactSet StreetAccount. (For earnings graphic see, http://tmsnrt.rs/1MfhspW)
Shares of Disney fell about 2 percent in extended trade.
Revenue at Disney’s cable networks business rose 1.4 percent to $4.20 billion in the third quarter ended July 2, but missed an analyst consensus of $4.31 billion.
ESPN — the company’s cash cow — drove the increase in cable networks operating income due to affiliate and advertising revenue growth, although the number of subscribers fell and programming costs rose.
“The Jungle Book” and “Captain America: Civil War” fueled gains at the movie studio, with revenue increasing 39.6 percent to $2.85 billion. Operating income rose 62 percent to $766 million.
Revenue at its theme park and resorts business was up 6 percent to $4.38 billion.
The net income attributable to the company rose to $2.6 billion, or $1.59 per share, in the third quarter, from $2.48 billion, or $1.45 per share, a year earlier.
Revenue rose to $14.28 billion from $13.10 billion.
Excluding items, the company earned $1.62 per share.
Analysts on average had expected a profit of $1.61 per share and revenue of $14.15 billion.
Disney’s shares fell to $94.92 in extended trade on Tuesday, down from a close of $96.67.
(Reporting by Anya George Tharakan in Bengaluru; Editing by Sriraj Kalluvila, Bernard Orr)