ESPN is a double-edged sword for Disney as consumers cut the cord

Key Points
  • Disney said ESPN hurt operating costs because of high programming costs and lower subscription rates.
  • CEO Bob Iger said the company was aware of the shift to digital plans to be on streaming services like Hulu and YouTube.
  • Iger is "confident in ESPN's future."
Iger: Confident in ESPN's future
Iger: Confident in ESPN's future

Disney said ESPN took a chunk out of its operating income this past quarter, largely due to higher programming costs.

However, the sports network may also be the media company's way to grab the attention of digital audiences if deals with over-the-top services pay off.

Disney reported its quarterly earnings on Tuesday after the bell. The company beat analyst estimates for earnings per share, but revenue of $13.34 billion trailed the average estimate of $13.45 billion. The stock fell about 2 percent following the announcement.

While cable network revenue for the quarter rose 3 percent to $4.1 billion, operating income decreased 3 percent to $1.8 billion. The company said it was due to ESPN's higher programming costs, including the shift of timing in college football playoff games and rate increases for NBA programming. ESPN also laid off about 100 staffers in late April.

Disney CEO Bob Iger acknowledged the rising costs of sports content in an interview with CNBC. He also pointed out another factor currently hurting ESPN: dwindling cable subscriptions.

Audiences no longer have to go to TV, let alone ESPN, to get their sports fix. Twitter announced at its first Digital Content NewFront presentation to advertisers it would have rights to WNBA and MLB games, as well as the PGA Tour. Amazon will air NFL's Thursday Night Football this upcoming season.

Facebook is in talks to stream one MLB game per week, according to Reuters. Hulu and YouTube have begun offering streaming live TV options, as have AT&T, DISH and Sony.

Iger on potential POTUS run: Not spending much time on what I'm going to do next
Iger on potential POTUS run: Not spending much time on what I'm going to do next

With all these options, consumers no longer have to sit in front of the television to watch their favorite teams, which has for decades been the lifeblood of ESPN.

Disney has taken steps to embrace the digital platforms, Iger said. The company negotiated deals with streaming services and improved the ESPN digital experience and app.

"We believe we're well positioned to contend with what we think is continued disruption in the business," Iger told CNBC.

ESPN is available on digital services from Hulu, YouTube, AT&T and Sony. They are "user-friendly, mobile first" and increase engagement with viewers, Iger added.

"We believe these new light pack options that include ESPN and over-the-top top platforms are the future and an asset to us," Iger said.

Still, that growth is not enough to offset traditional cable and satellite revenue, Iger said. Not yet anyway.

"We will eventually be in a direct consumer business for ESPN products, and hope to launch one of our brand technology platforms before the end of year," he said. "We are actually confident in ESPN's future."

Note: CNBC parent company NBCUniversal is an investor in Hulu.