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September 27, 2005

ABC Season Off To Good Start For Disney

Goldman Sachs had a note out on Monday indicating that the fall season at the Walt Disney (DIS) owned ABC Network is off to a good start. Ratings for key returning shows including Desperate Housewives, Lost, and Grey's Anatomy were all up over last year's season opening shows with Lost actually setting an all-time high rating....

...A turnaround at ABC is one of the key catalysts for DIS shares so this is good news. According to reports from the upfront last spring, ABC held back inventory in its returning hit shows so strong ratings should allow for premium pricing on this inventory relative to the subdued upfront pricing. However, one week certainly does not make a season and ABC can’t claim unqualified success unless some of the new shows grab decent ratings. On that front, Goldman noted that Invasion got off to a decent start. Political drama Commander in Chief debuted last night to good reviews including an excellent write-up in Tuesday's Chicago Tribune (I was watching Part II of the excellent Bob Dylan PBS documentary No Direction Home).

The turnaround at ABC has become more important to the DIS story given fears about discretionary consumer spending due to elevated energy prices, the big bath at the movie studio recently announced, and the collective yawn at the successful opening of Hong Kong Disneyland that was expected to be a positive catalyst. Last fall, when ABC first showed improved ratings, DIS shares rallied from about $23 to $28 by year end, so a precedent for ABC driving the shares might exist.

Other possible catalysts before year end include box office success for the Chronicles of Narnia film, a new deal with Pixar where recent rumors indicate something might be in the works, resolution of the sale of company's radio stations, and decent 2006 guidance when the company reports fourth quarter 2005 earnings in late October. Next summer's Pirates of the Caribbean sequel is sure to be a hit but I can’t wait that long for good news.

DIS has been a disappointing stock since I went long at $26 earlier this year. Hopefully, the next few news items will be positive setting the stage for better performance for the shares as expectations have been reduced and the bar lowered.

Posted by Steve Birenberg at September 27, 2005 03:29 PM in DIS