Disney Shares Fall as Analysts Eye ABC

BURBANK, Calif. – Shares of Walt Disney Co. (DIS) fell Friday, a day after the company posted earnings in line with Wall Street estimates, although some analysts expressed caution, given the weak performance of its ABC television network.

The company's fiscal second-quarter operating income fell by 35 percent, on a 5 percent decline in pro forma revenues, primarily due to ratings woes at ABC and weak attendance at Disney's theme parks. But the results were on the high end of Wall Street estimates.

Disney shares fell 3.8 percent, or 95 cents, to $24.05 on the New York Stock Exchange. But, since bottoming on Sept. 20 following the Sept. 11 attacks, the shares have rebounded 44 percent, outperfoming the S&P media index, which has risen around 9 percent.

"The company faces challenges to most of its businesses," UBS Warburg analyst Chris Dixon said in a research note.

The ABC network has been forced to offer advertisers "make goods" -- additional advertising time given to sponsors to compensate for audience ratings that are weaker than the network promised when it originally sold the ad time.

This has prevented the company from benefiting from improving ad rates throughout the industry, Dixon noted. He also noted a decline in international visitors to Walt Disney World, Disneyland and other theme parks.

Lehman Brothers analyst Stuart Linde said the theme parks unit exceeded expectations, helped by a strong March and an early Easter holiday, but he, too, noted that ABC's ratings struggles in prime-time would create some volatility in the stock.

He anticipated that ABC's "upfront" ad revenues would decline 15 percent from last year. Upfront, which typically starts in May, refers to advertising time sold in advance of the coming fall season.

ABC is believed to be considering taking a page out of the playbook of CBS. Last year, CBS held back ad time in the upfront, gambling that their slate of shows, which include hits like "Survivor" and "CSI," would yield stronger rates in the spot market.

In order for the strategy to work, however, ABC has to deliver hit shows, which have been few and far between for it in the past couple of years. The network had some success this past year with "Alias" and "The Bachelor."

"We are going to try to hold pricing as best as we possibly can and, in effect, let the marketplace develop before we make the kinds decisions (on) exactly how much we are going to hold back," Disney President Bob Iger told analysts on Thursday.

Iger said ABC has 29 pilot episodes in development for next season. He also reiterated the network's goal to have one or two hits. He noted that ABC needs at least one big hit to drive its ratings to No. 1 among 18- to 49-year-olds -- a key target audience -- on at least one night a week.

Goldman Sachs analyst Richard Greenfield sounded a more optimistic tone. "Its businesses are recovering at a faster rate than we had initially anticipated, driven by theme parks and an improving ad environment," he wrote in a report.