• by David Goetzl  @dgoetzl, July 31, 2008

The recent lackluster results for Disney's free-TV operations that the company reported Wednesday were foreshadowed two months ago by company CEO Bob Iger. At an investor event, he offered a stark view of the future of the single-revenue-stream formula that is broadcast TV.

"It's a tough model--it's really tough," he said, a notable admission by a top executive who presides over a business with billions at stake there.

His comments in May referred both to the ABC network and its owned-and-operated stations. On Wednesday, Disney said broadcast revenues were flat in the recently completed quarter and operating income was down 11% (to $260 million)--and it gave no indication that a turnaround was imminent.

Like Viacom on Tuesday, Disney said ad spending has been ebbing recently--not only at ABC and the stations, but also at ESPN. "The pace of advertising sales has slowed somewhat in recent weeks," CFO Tom Staggs said on a conference call about the results.

Overall, even with broadcast revenues flat, Disney's larger media networks segment--which includes ESPN and the Disney Channel, and revenue streams such as affiliate fees--saw an 8% revenue jump to $4.1 billion for the three months ending in June. Operating income was up 9% to $1.4 billion.

Disney at-large saw revenue up 2% to $9.2 billion and operating income increase at the same rate to $2.3 billion.

Staggs said that in the recent quarter, broadcast performance was hurt in part by ad dollars falling at ABC's 10 stations by "mid-single-digit percentages."

Struggles in the station business are hardly unique to ABC--where like its competitors, spending cuts in the auto category have been a trouble spot. Disney said cuts in spending in financial services and consumer electronics were also contributing factors.

The hurdles raise the question of whether Disney would sell any of its stations. NBC Universal recently took the somewhat startling step of looking to unload two of its 10 stations, including one in Miami. While seven of ABC's stations are in large markets, it operates outlets in Fresno, Calif., Flint, Mich., and Toledo.

Still, executives gave no indication that they intended to put stations on the market. Staggs said: "We're extremely pleased with our station management team's performance" in light of the economic circumstances. He said eight of the stations are No. 1 in their markets, and have gained market share even as ad dollars have dropped. Iger called ratings "sensational" on the Wednesday call.

At the ABC network, Iger said choppy waters are necessitating cost-cutting, but indicated that investment may not ramp up when that smooths out. The cuts have not come in program development or production, he said--but there isn't "room in that business" to "significantly" increase them either.

The recent writers' strike did bring some cost-cutting. Iger said ABC canceled some long-term commitments to writers and producers, and does not plan to make similar ones.

Staggs said scatter pricing has remained above 2007-08 upfront levels at ABC--but added that this was a result of tight supply, an indicator that volume may not be up much.

Iger was said to play a role in negotiating an end to the writers' strike, and said Wednesday that he did not expect the impasse with the Screen Actors Guild to lead to a work stoppage-because of the economy and the potential for a public opinion backlash. It's "unlikely you'll see another work stoppage in the near term," he said.