Star posts operating loss of $60 mn in Q3 due to incremental increase in sports rights fees
MUMBAI: The Walt Disney Company has disclosed that Star India posted an operating loss of $60 million in the third quarter of FY19 due to increase in rights costs related to the Indian Premier League (IPL) and ICC Cricket World Cup 2019.
The company noted that the revenue growth at Star was offset by the incremental increase in rights expense. In the same quarter of the previous fiscal, Star had posted an operating profit of $150 million.
Disney’s segment operating loss increased to $553 million due to the consolidation of Hulu ’s operations, ramp-up of investment in ESPN+ and costs associated with the upcoming launch of Disney+.
Results for the quarter also reflected a benefit from the consolidation of 21st Century Fox’s operations due to income at the Fox and National Geographic international channels, partially offset by a loss at Star India.
Disney Senior EVP & CFO Christine McCarthy noted that Star India’s Q3 result was significantly lower than the expectations. She also noted that the 21st Century Fox (21CF) film studio performance was also not up to the expectations.
“First, the 21CF film studio had an operating loss in the third quarter of about $170 million, which was driven by the underperformance of theatrical titles, including Dark Phoenix, marketing for future releases and development expenses, partially offset by TV/SVOD distribution. While 21CF’s performance is not reflected in our prior year results, we estimate that 21CF film studio generated about $180 million of operating income in Q3 last year,” McCarthy stated during the Q3 2019 earnings conference call.
She continued, “Second, as you know, results at DTCI reflect ongoing investment in our direct-to-consumer businesses, and this quarter also included an operating loss at Star of about $60 million. We estimate Star generated about $150 million of operating income in the third quarter last year. Star’s results this quarter came in well below our expectations and were driven primarily by a meaningful step-up in rights cost for the quadrennial Cricket World Cup and the Indian Premier League as revenue growth was more than offset by the incremental rights expense.”
McCarthy also noted that certain games in the ICC World Cup were washed out due to rains. However, that will be compensated through insurance. She also noted that there was a weakness in the Indian advertising market.
“And on Star, it was the quadrennial Cricket World Cup, of course. They have their Indian Premier League, which is ongoing, but this is once every four years for the World Cup. There were a couple of significant games that were rained out. They have insurance coverage for some of those, but any proceeds would be in future periods. And there was also some weakness in advertising revenue that was related to the local advertising market,” she stared.
She expects our Direct-to-Consumer & International segment to generate about $900 million in operating losses in the fourth quarter, which represents an increase of about $560 million over the fourth quarter last year.
“We expect the continued investment in our DTC services, including ESPN+ and Disney+, and the consolidation of Hulu to drive an adverse impact on the year-over-year change in segment operating income of our direct-to-consumer businesses of approximately $550 million, which is almost the entirety of the total segment change versus prior year,” McCarthy stated.
The Walt Disney Company chairman & CEO Bob Iger noted that the 21CF deal also added Star and Hotstar to its portfolio of businesses. The addition of Star and Hotstar will give Disney a significant presence in India, which, he noted, will soon become the most populous country in the world.
“It’s a huge market with interesting dynamics notably, a rapidly rising middle class with a strong and growing appetite for media, especially sports,” Iger said.
Talking about the scale of Hotstar, he said, “To give you an idea of the value of this platform, last quarter, Hotstar had more than 300 million average monthly users, served an unprecedented 100 million daily users and delivered a high-quality streaming experience to 25.3 million simultaneous users, which is a new world record.”
He also revealed that Hotstar will be expanded across South East Asia. “The platform’s broad array of premium sports rights will serve it well over the next five years especially as we expand the service into markets across Southeast Asia.”