Disney: WatchESPN generating 'tens of millions' in annual ad revenue

Multiplatform advertising remains a relatively small business for ESPN, but executives at parent Walt Disney Co. (NYSE: DIS) said Tuesday that they expect revenue from mobile video application WatchESPN to increase.

"The [WatchESPN] app is an opportunity for [ESPN] to generate more advertising revenue, and they are in fact selling ads for the watch app, but the numbers, even though they are in the probably tens of millions of dollars at this point, they are still relatively small when compared to their total, both advertising revenue and their total revenue," Disney CEO Bob Iger told analysts on the company's second-quarter earnings call. "But we believe that they will continue to grow," he added.

WatchESPN, which launched in 2011, is Disney's hottest multiplatform product. It's marketed by most major pay TV distributors and is also available to authenticated ESPN subscribers on connected TV devices like the Xbox 360 and Apple TV. Disney may also be able to grow advertising revenue from its ABC owned-and-operated stations with its new Watch ABC app, which streams live programming, but that product is only available in a handful of markets.

ABC could use multiplatform revenue from Watch ABC to boost ad sales for its owned-and-operated stations, which struggled in Q2. Disney said operating income from its broadcasting segment dropped by $55 million to $213 million. Despite ABC's push to raise retransmission-consent fees, it was impacted by lower ad revenue and increased costs to acquire programming for its primetime lineup.

Disney may also be able to boost revenue by licensing networks to a virtual pay TV provider like Intel (Nasdaq: INTC). While CFO Jay Rasulo said there may be new entrants looking to strike licensing deals in the near term, he told analysts not to expect "much of an impact in the next few quarters."

"I still believe that overall, these new platforms, whether they are over the top or not, offer us more and new opportunities to monetize their content, and our approach to them will probably be somewhat consistent with how we have approached other distributors, both incumbents and new distributors," Rasulo added.

Disney said operating income at its cable networks jumped by $229 million to $2.1 billion, driven by increased affiliate and advertising revenue at ESPN and A&E Television Networks, which was offset by a decrease in income from ABC Family.

The media giant generated $11.6 billion in revenue in Q2, up 4 percent compared to this time last year. Net income increased by 1 percent to $1.8 billion, and the $1.01 in diluted earnings per share that it reported was flat compared to last year.

For more:
- see the earnings release
- see the transcript from Q2 call

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