One of Disney’s most popular brands has investors really worried
By Brian Fung
Dec 9 2016
For the second year in a row, Disney is poised to have another “Star Wars” megahit on its hands with the company on track to sell $130 million in U.S. pre-release tickets for next week’s “Rogue One.”
But no matter how well it performs at the box office, the film’s success may be overshadowed by Disney investors’ rising alarm about another part of the Magic Kingdom: ESPN, which is shedding viewers in record numbers.
ESPN was thrust into the spotlight in November when the ratings company Nielsen predicted the sports juggernaut would lose 621,000 cable subscribers that month. Nielsen estimated the sports network would lose another 555,000 subscribers in December.
The staggering losses have led to calls by analysts for Disney to spin off or sell the beleaguered network, which has lost 9 million subscribers in three years, according to company filings.
The challenges ahead are not unique to ESPN. The pay-TV industry as a whole has seen many consumers trim back their cable subscriptions in favor of online video services — or, fed up with the rising cost of TV, forgo cable altogether.
“There’s an underlying theme of the bundle being the problem,” said Gene Kimmelman, president of the consumer advocacy group Public Knowledge. “People don’t want to pay for what they don’t want to get.”
But ESPN remains one of the world’s most profitable sports networks, and its struggles raise troubling questions about the entire TV ecosystem. Long considered the linchpin of the traditional bundle, live sports is often what compels viewers to stay with their cable provider rather than cut the cord. But as more consumers defect in the face of growing cable bills, what is happening at ESPN could end up affecting channels up and down the lineup. And for Disney, one of the world’s most powerful media companies, the problems at ESPN risk dampening the success of its other brands, such as Star Wars, Marvel Studios and Pixar.
“Most of the Disney empire is healthy, but its stock price has been suffering to the downside because we have weak subscriber growth at ESPN,” said Laura Martin, a media analyst at Needham and Co. “So that weak subscriber growth is a shadow over the whole empire.”
ESPN and its siblings, such as ABC, account for the biggest chunk of Disney’s business by far, pulling in $24 billion in revenue this fiscal year. The company’s next biggest segment, theme parks, made $17 billion.
It wasn’t that long ago that observers were calling ESPN “the most valuable media property in the United States,” estimating its value at 20 times that of the New York Times Co. and five times the size of Rupert Murdoch’s News Corp.
Since hitting a high of nearly $122 in the summer of 2015, the stock has dropped about 14 percent; that includes a 5 percent rally this week.
Although ESPN disputed Nielsen’s methodology, the ratings firm ultimately stood by its numbers.