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Walt Disney Gambling on ABC News

English-language cable news project coming a little late


For Walt Disney (NYSE:DIS), no news is good news.

The media conglomerate has for years looked for a cable partner for ABC News and found no takers. Now, it’s reportedly in the hunt yet again, and the stakes couldn’t be higher.

According to media reports, the Burbank, Calif.-based company is in talks with Spanish language broadcaster Univision about launching an English-language cable news channel geared toward the Latino audience. Such a partnership would help Disney significantly reduce costs and restore some of the luster ABC News has lost since 2010 when it fired 20% of its staff and revelations that it paid some sources, including writing a $200,000 check to Casey Anthony for photos it ran with a 2008 story. But it is risky.

For one thing, the channel will fail if it tries to be all things to all people. Latinos are not monolithic. Someone of Cuban ancestry living in Florida might not have much in common with a Mexican American from California or a Puerto Rican from New York, other than the Spanish language. Given the wide variations in idioms, that might not be enough to hold them together, either.

Then there are the economics. Setting up a new cable network is not cheap, and the news audience already is spread thin among News Corp.’s (NASDAQ:NWS) Fox, Time Warner’s (NYSE:TWX) CNN and Comcast’s (NASDAQ:CMCSA) MSNBC, along with niche players including Bloomberg TV and Current TV. Whether there is room enough for another player is hard to say.

Getting people to change their media habits — even for programming targeted toward them — is difficult. Fox Business Network has struggled to attract viewers since it launched in 2007. Keith Olbermann’s ratings have plunged since he switched from MSNBC to Current last year.

Speaking yesterday on the earnings conference call, CEO Bob Iger declined to discuss the reports about a cable news channel but said Disney was committed to the growth of ABC News. Profit in the fiscal first quarter rose 12% to $1.46 billion, or 80 cents a share, buoyed by the strength of its broadcast and cable networks along with its theme parks. Revenue rose 1% to $10.78 billion, missing Wall Street expectations of $11.19 billion. DIS shares were up less than a percent by noon Wednesday.

ABC News generates roughly $600 million in revenue, according to the Pew Research Center’s Project for Excellence in Journalism. That’s a hiccup for Disney. Fox and CNN/HLN each generate more than $1 billion. MSNBC’s revenue is roughly half that, Pew estimates, citing data from Kantar Media.

Pew estimates that ABC News generated a small profit in 2009, and because of drastic cost cuts, operating margins likely doubled in 2010. Pew says those margins likely reached double digits in 2011, especially since both Good Morning America and ABC World News with Diane Sawyer are closing the ratings gap against first-place NBC. CBS (NYSE:CBS) remains a distant third in both morning and evening news.

ABC News is right to seek a cable partner, but it is undertaking the strategy about 10 years too late. Instead of securing a beachhead among the cable news audience, it might be stuck fighting for crumbs.

As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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