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

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By Lisa Richwine and Dawn Chmielewski

LOS ANGELES (Reuters) -Walt Disney signaled on Thursday it was girding 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 and pushing its shares down 8%.

The company also missed quarterly revenue expectations as the cable weakness overshadowed strong growth in the company’s streaming and parks businesses that powered a profit beat.

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.

“Ultimately, the losers are users,” said PP Foresight analyst Paolo Pescatore.

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.

“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.”

BUYBACK, DIVIDEND BOOST

The media and entertainment giant also unveiled plans to boost its dividend by 50% and double its share buyback plan for fiscal 2026.

It posted adjusted earnings per share of $1.11 for its fourth quarter ending in September, a 3% decline from a year earlier but 6 cents above an average LSEG estimate.

Profit rose in Disney’s theme parks unit, partially from an expansion of the U.S. cruise ship business and growth at Disneyland Paris.

Earnings at its streaming business surged 39% to $352 million. 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, Chief Financial Officer Hugh Johnston told Reuters.

Box office smash “Lilo & Stitch” debuted on Disney+ during the quarter and racked up 14.3 million views in its first five days, he said.

Disney has been remaking itself to adjust to the industry-wide decline of traditional broadcast and cable TV. It has invested in new theme park attractions and cruise ships and worked to lure subscribers to its streaming services.

Iger told investors Disney has had productive conversations with artificial intelligence companies, as it seeks to protect its characters and stories and looks for ways to use the technology. He said the company is exploring ways of using AI to allow Disney+ subscribers to create short-form, user-generated 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.”

Iger undertook aggressive cost-cutting when he returned to Disney in 2022. His current contract expires at the end of 2026, and Disney has said it will name Iger’s successor early next year.

TRADITIONAL TV DECLINE

Thursday’s earnings report reflected a continued slide in television fees and advertising revenue, but the company projected confidence in the next two years. 

Disney forecast double-digit adjusted EPS growth for fiscal 2026, in line with its previous forecast. The company also said it expected double-digit adjusted EPS growth for fiscal 2027. 

The company’s board declared a dividend of $1.50 per share, up from $1 a share, and doubled its stock buyback to $7 billion in fiscal 2026.

In the just-ended quarter, Disney’s revenue was comparable to a year ago at $22.5 billion but shy of the $22.75 billion analyst forecast.

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.” 

Profit at the traditional television unit declined 21% to $391 million, and income from ESPN slipped too.

The experiences unit that includes theme parks posted operating income of $1.88 billion, up 13% from a year ago. Part of the growth came from more passenger days on Disney cruise ships, the company said.

“This was another year of great progress as we strengthened the company by leveraging the value of our creative and brand assets and continued to make meaningful progress in our direct-to-consumer businesses,” Iger said in a statement.

(Reporting by Lisa Richwine; Editing by Sonali Paul, Arun Koyyur and Nick Zieminski)