Iger: Disney Will Seek Retrans Cash, ESPN License Fee Increases

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The Walt Disney Co. CEO Bob Iger told analysts Tuesday that his company is willing to do battle for increased fees for its broadcast and cable networks, adding that the media giant also sees upside in affiliate fees for its ESPN network as well as new opportunities in the digital delivery of content with Apple Computer's new iPad device.

"We run some of the best stations in the country," Iger said on the conference call. "...We think it's time to recognize the value they provide to distributors and their importance to the local community and to our viewers in those communities. We believe it would be appropriate to seek cash for retransmission consent and we believe the same would be the case for our affiliates. I won't say how much or describe the discussions we are having with the distribution community, but clearly there is a trend we are observing that we fully intend to participate in."

That trend was evident at the beginning of the year, when Fox Broadcasting ended its weeks-long battle with Time Warner Cable, winning retrans cash for its stations in markets like Los Angeles, New York City and Dallas.

While neither side revealed the terms of their deal, sources in the affiliate sales community have said it is a six-year deal that starts at 50 cents per subscriber per month and escalates to $1 in the final year.

Disney has been aggressive on the retrans front with its affiliates: late last year Belo Corp., which owns several ABC affiliates said it would allow Disney to participate in its retrans haul for those stations.

And like Fox, which threatened to pull its stations from Time Warner Cable in the absence of a deal, Iger said that Disney will not back down from a fight.

"We're pretty resolute. We know the value of these stations and the importance of these stations in their local markets. We know that there are stations -- in some cases our affiliates -- that have been compensated for retransmission consent and we feel should be compensated as well," Iger said. "It clearly would not be our preference to see our signal taken down, and we will do whatever we possibly can through negotiation to avoid that, we also believe we have an obligation to derive value from great investment we've made in these programs, whether they are local in nature or national in nature. We have every intention to do just that."

Iger added that he believes that ESPN, which attracts the highest affiliate fees of any ad-supported network, still has upside potential.

Iger said that although ESPN is not engaged in any major negotiations now -- reports indicate that its next deal expires in August with Time Warner Cable -- he believes that operators recognize the value that the network delivers.

"We think our position going into a new round of negotiations is actually quite solid because of the value we are generating," Iger said." Distributors do quite well with ESPN, not just because of the overall value we deliver, but the ads they sell on local basis are worth a considerable amount. ESPN generates more advertising revenue than any other channel in the cable universe."

Iger also hinted that Disney could participate in Apple Computer's new iPad device - some have even see the product as a way to bypass cable and satellite distributors. Iger didn't go that far, but he called the iPad a "game changer."

"We find the iPad has lot of potential; we think it's a really compelling device and we think it could be a game changer in terms of enabling us to create essentially new forms of content," Iger said. "Obviously it's a great device to play games on and watch video, but the interactivity it will allow on a portable device with such a high quality screen is going to enable us to start developing products that are different than the products you typically see on an Internet-connected computer or a television set."

Iger added Disney has had success with IPhone and ITouch applications and that could expand to the iPad for ABC entertainment and news programming and even its cable networks like ESPN.

"We're still at the beginning of the beginning," Iger said.

For the quarter, revenue rose 1% to $9.7 billion and segment operating income rose 9% to $1.6 billion in the period, fueled mainly by gains in its media networks, including the ABC broadcast network and the Disney Channel, ESPN and ABC Family. The unit posted a 7% increase in revenue to $4.2 billion and an 11% rise in segment operating income to $724 million in the quarter.

Drilling deeper, cable network revenue rose 8% to $2.7 billion an operating income was up 5% to $544 million. On the broadcast side, revenue was up 5% to $1.5 billion and operating income rose 30% to $180 million, mainly because of the absence of a one-time charge.

Rounding out the quarter, Parks and Resorts reported flat revenue of $2.7 billion and operating income dipped 2% to $375 million, while Studio Entertainment reported sluggish revenue (down 1% to $1.8 billion) but operating income was up 30% to $243 million.

At Consumer Products, revenue decreased 3% to $746 million and operating income fell 8% to $243 million and Interactive Media, which includes Disney's video game unit, saw revenue fall 29% to $221 million, while operating loss improved to $10 million from $45 million in the prior year.

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