Why ESPN is key to Disney's upcoming earnings

After the bell Tuesday two media giants report: Disney and the newly spunoff 21st Century Fox. Both companies should benefit from the recovering advertising market and higher fees for their TV networks.

In focus at Disney in its fiscal third quarter is ESPN, the valuable sports network, which faces tough comparisons to a year ago. Disney's revenue is projected to grow 5 percent to $11.65 billion, while earnings per share are projected to inch up 1 percent to $1.02.

But the advertising recovery should benefit ESPN as well as Disney's other networks, including ABC and and ABC Family. Citigroup analyst Jason Bazinet projects the company's cable network revenue will increase 8.5 percent while ratings will grow 9.5 percent. Goldman Sachs analyst Drew Borst warned that aggregate prime-time ratings declined 28 percent in the fiscal third quarter, largely because of weaker NBA playoff ratings.

Walt Disney Co.
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There will be plenty of questions about how the theme parks performed, and what kind of impact there was from the introduction of MyMagic, which allows visitors to pay throughout the parks with a wristband instead of cash or credit cards.

Bazinet warned that the timing of the Easter holiday will negatively impact the theme parks in the quarter, but still projected a 2 percent increase in parks attendance in the quarter.

At the film studio analysts will look for insight into the impact of the disappointing recent release of "The Lone Ranger." The film won't affect the results out Tuesday, the question is whether the studio will have to take a write-down in the following quarter.

Borst is projecting a $150 million write-down in Disney's fiscal fourth quarter on "The Lone Ranger."

21st Century Fox, will follow its earnings Tuesday afternoon with an investor day in Los Angeles at its studio on Thursday. After splitting off from the struggling publishing division, the company is expected to report revenue of $7.12 billion and earnings of 34 cents per share.

Analysts expect revenue from Fox's pay-TV channels, including Fox News and FX, to rise on higher fees and stronger advertising. Though Fox Broadcast Network should suffer from a decline in ratings. The company's increased stake in Sky Deutschland should boost the company's satellite-TV revenue.

Credit Suisse analyst Michael Senno ranks Fox as "one of the most compelling names" in the bank's large-cap entertainment coverage, citing its "strong premium sports exposure," with the launch of Fox Sports 1 on Aug. 17, "international growth opportunities, declining ad exposure and potential upside to capital returns."

Deutsche Bank analysts Vikas Gour and Doug Mitchelson also point to the potential in new national sports network Fox Sports 1.

"We believe FS1 will be a significant positive for Fox and has the potential to become a $5B-$10B asset for Fox before the decade is out," they wrote in an analyst note. "The critical wildcard will be how successfully FS1 takes on the highly profitable ESPN Sportscenter. Also, according to media buyers we surveyed, FS1 will take ad share from male-oriented programming across all networks."

—By CNBC's Julia Boorstin. Follow her on Twitter: @JBoorstin