Hulu Developing Watch App for Multichannel Subscribers, Says Disney CEO

ABC’s “C3 ratings” are higher in homes with DVRs, Disney CEO Robert Iger said on Disney’s fiscal Q1 earnings call late Tuesday. C3 ratings, the metric used for how primetime TV advertising is bought and sold, are the average of all commercial minutes watched both live and in three days of DVR viewing. Iger called the ratings “quite interesting,” noting that they include some VOD programming with mechanisms that prevent fast-forwarding, indicating consumers are “clearly looking for access to shows and willing to tolerate some inability to skip through commercials in order to see the shows that they want to watch.”

Iger’s comments came in response to a question on potential competition for ad dollars between ABC and its partnership in Hulu. On the strategy for Hulu going forward, Iger deferred that question to its board but said Hulu is looking at continuing to make product available in “alternate forms,” with mobile being one. Issues to consider are Hulu’s impact on advertising and the impact on the multichannel business and retransmission consent, Iger said. “They are working very hard at creating a watch app that will be available to people who are subscribers to multichannel services,” he said, declining to say when the app would be available. He referred to a developing windowing strategy reflecting a feeling that the best way to monetize content is to make it available to subscribers who have shown a willingness to pay and to limit availability of content “to what’s in-season."

On the distribution deal with Netflix, Iger said it was “not a step in the direction of encouraging people to not subscribe to multichannel services.” After long discussions, Disney executives saw the Netflix deal as “a movie play,” Iger said, but with limitations on availability, while being a “completely different product” than the Disney Channel. The Disney Channel, available only through a multichannel service, will continue to hold appeal for viewers because of the popularity of the shows and demand to see the shows quickly, Iger said. He said the number of Disney Channel subscriptions has grown recently.

Disney’s Interactive segment swung to an operating profit of $9 million in fiscal Q1 2013 ended Dec. 29, compared with a loss of $28 million in the year-ago quarter, but “there’s still work to do,” Iger said. Gains were due to improved results in games as well as strength in the Japan mobile business, according to Chief Financial Officer James Rasulo, who said higher operating income in games was due to a lower impact of purchase accounting compared to the prior year. Disney continues to forecast profitability in the segment for fiscal 2013 but operating losses in Q2 are expected to be comparable to the prior year due to the lack of key title releases. Iger said the Infinity videogame remains “a big swing factor for the year” for the Interactive division. Disney’s goal with Infinity is to deliver “a riveting platform that can live for years to come,” Iger said. In support of Infinity, Disney will regularly launch new games and playsets based on its content portfolio, enabling players to create adventures with Disney and Pixar characters, he said. Retail purchases have been “very, very strong” for Infinity, Iger said. Retail commitment for the product is “beyond what we believed it would be, and that bodes very well,” he said.

For the quarter, Disney profit slipped to $1.4 billion on revenues of $11.3 billion, down from profit of $1.5 billion on revenues of $10.8 billion in the fiscal Q1 2012. Increased operating income in the broadcasting segment, boosted by higher advertising revenue from higher political spending, offset a decline in the cable segment, Rasulo said. During the quarter, Disney recorded a $55 million charge for its share of expenses related to an equity redemption at Hulu for executive compensation, according to the company’s 10-Q filing. Looking to fiscal Q2, in the broadcasting segment, programming expenses are forecast to be $40 million higher this quarter than in fiscal Q2 2012.