Disney warns of potentially long dispute with YouTube TV, shares fall

LOS ANGELES: Walt Disney signaled on Thursday it was gearing up for a potentially prolonged fight with YouTube TV over distribution of its television networks, worrying investors about the outlook for its already declining TV business.

The company also missed quarterly revenue expectations as the cable weakness overshadowed strong growth in the company’s streaming and parks businesses central to its growth. Shares were down 8.3% in afternoon trading Thursday.

On a post-earnings call, Chief Financial Officer Hugh Johnston told analysts Disney has “built a hedge” into its forecasts assuming the negotiations could drag on.

Disney’s networks disappeared from YouTube TV – the fourth-largest pay-TV provider in the U.S. with about 10 million subscribers – on October 30 in the latest carriage rights dispute between the Alphabet unit and a major media company. NBCUniversal also had a similar dispute with YouTube TV earlier this year.

“Disney is reducing its reliance upon cable companies to distribute its channels. But cutting out video distributors will take time,” said Emarketer senior analyst Ross Benes. “YouTube TV is one of the leading cable TV providers, so its absence is a big hole for sports fans.”

Morgan Stanley analysts estimate a 14-day blackout on YouTube TV would cost Disney about $60 million in revenue. The tense discussions underscore YouTube TV’s rapid growth as well as Google’s vast financial resources, which give it greater leverage in negotiations with media companies.

“The deal that we have proposed is equal to or better than what other large distributors have already agreed to,” Disney CEO Bob Iger said, referring to the talks with YouTube TV. Iger’s current contract expires at the end of 2026; Disney is expected to name his successor early next year.

“And while we’ve been working tirelessly to close this deal and restore our channel to the platform, it’s also imperative that we make sure that we agree with a deal that reflects the value that we deliver, which both YouTube, by the way, and Alphabet have told us is greater than the value of any other provider.”

Disney’s quarterly revenue was comparable to a year ago at $22.5 billion but shy of the $22.75 billion analyst forecast.

Profit at the traditional television unit declined 21% to $391 million, and income from ESPN slipped too, offsetting other divisions including streaming, where earnings rose 39% to $352 million. Disney has invested more in streaming and its parks to offset the industry-wide decline of traditional broadcast and cable TV.

BUYBACK, DIVIDEND GET A BOOST

The media and entertainment giant said it would to boost its dividend by 50% to $1.50 a share, and double its share buyback plan to $7 billion for fiscal 2026.

It posted adjusted earnings per share of $1.11 for the September-end quarter, down 3% from a year earlier but 6 cents above the average LSEG estimate.

Profit rose in Disney’s theme parks unit to $1.88 billion, up 13% from a year ago, partially from an expansion of the U.S. cruise ship business and growth at Disneyland Paris.

Disney said it added 12.5 million subscribers to Disney+ and Hulu during the quarter, reaching a total of 196 million.

A new distribution deal with cable and broadband provider Charter Communications  helped draw new streaming customers, Johnston told Reuters.

Operating income at the entertainment division slumped by more than a third to $691 million after this year’s films failed to match the success of last year’s hits “Inside Out 2” and “Deadpool & Wolverine.”

Iger said Disney has had conversations with artificial intelligence companies as it looks for ways to use AI technology while still protecting its characters and stories. He said the company is exploring how to use AI to allow Disney+ subscribers to create short-form content.

“There’s phenomenal opportunities to deploy AI across our direct to consumer platforms,” said Iger, “both to provide tools that make the platforms more dynamic and more sticky with consumers, but also to give consumers the opportunity to create on our platforms.”