Disney CEO Says ESPN Adapting to "Evolving Markets" Amid Cord-Cutting

How Bob Iger Can Fix His ESPN Problem- H 2016

The flagship sports channel was a focus of an analyst call as ESPN continues to lose subscribers.

Disney CEO Bob Iger on Tuesday said the company has moved quickly on the digital front to transform ESPN in an era of cord-cutting and subscriber losses.

"We recognized the early signs of a shift in the industry, and anticipated its impact and adapted quickly to a strategy that responds to evolving markets," the exec told analysts after his company released its latest results.

His comments came as analysts were keen to hear from Iger how ESPN would be repositioned as cord-cutting continues as TV viewers migrate away from traditional platforms and long-term programming rights are increasingly expensive. Iger spoke after Disney posted mixed quarterly financial results on Tuesday, beating the earnings expectations of analysts, but missing on the revenue line.

Revenue at Disney's cable networks was down 3 percent quarter-over-quarter and operating income was also down 3 percent due to the performance of ESPN.

Iger told analysts that ESPN was increasingly shifting to new digital platforms as TV viewers embraced skinny bundles and virtual MPVDs. "This has led to ESPN being featured on a growing array of over-the-top services," including Sling TV and Hulu, the exec said. 

"We've seen really nice growth, but it's nascent," Iger said of cord-cutters and cord-nevers shifting their consumption of ESPN from traditional TV to new digital platforms. He said ESPN shifting to new platforms allowed the service to continue to be seen by younger viewers and cost-conscious consumers.

Iger added that a direct-to-consumer ESPN service was in the works as the flagship sports channel expands in the digital space. But he gave no indication on timing as Disney has to work out rights issues with programming partners.

"We don't have plans to basically take the channel and distribute it direct. ... But there's an inevitability to that," he told analysts. Without being specific, Iger added the eventual direct-to-consumer service would likely be distinguished by particular live sports and league offerings to better target consumers, rather than deliver an "omnibus" service.

Elsewhere, he said ESPN on the mobile front had increased the use of video and allowed users to better customize and personalize apps to better the chances they received preferred sport scores and game highlights.

"We're not sitting on our hands," Iger summed up when asked how ESPN had responded to the challenge of viewers slowing moving away from live TV sport viewing to off-line consumption on smartphones and other digital platforms.

Disney has been impacted along with other media giants as TV viewers cut or reduce the size of their cable packages to save money or switch to online platforms like Netflix and Amazon. Disney's subscriber losses have been most glaring at ESPN, where the latest round of layoffs included nearly 100 on-air personalities like NFL reporter Ed Werder and college basketball reporter Dana O'Neill, among many others.

Other personalities at the network, such as mainstay Hannah Storm, may see their roles reduced. Cord-cutting and subscriber losses have spooked Disney shareholders and forced ESPN to retrench as it faces increased rights fees and a growing focus on digital content.

Disney shares rose 1 percent on Tuesday to $112.06, but were down nearly 2 percent after the closing bell.