Walt Disney Co (DIS) has had an incredible year. Disney’s film division is more robust than ever and its parks are boasting record attendance, both of which contributed to a 5.1% increase in third quarter revenue year-over-year, to $13.1 billion. Best of all, Disney still has their wildly anticipated Star Wars movie debuting this December, ensuring strong box office and merchandising revenue far into the future. So, naturally, their stock fell nearly 10% after earnings were reported on Tuesday, and dropped another 1.79% on Thursday. Wait, what?
To understand why Disney just got a haircut of about 14%, you need to know that about half of Disney’s profits come from their television subsidiaries, and that among them, the crown jewel is clearly ESPN. Like virtually all basic cable channels, ESPN is viewed as a primary victim of the growing consumer phenomenon of “cord-cutting,” “cord-shaving,” and various other methods of abusing a cord, in favor of streaming services like Amazon.com (AMZN) Prime and Hulu – but mainly just Netflix, Inc. (NFLX) .
Media outlets like CNBC seem to see the rise in Netflix (up 2.21% on Thursday) and the drop in Disney as inextricably linked, claiming that the drop in ESPN subscribers noted by Disney CEO Robert Iger is due to changing consumer tastes in media and entertainment. While there’s no question that the bloated cable model is in the throes of a long overdue death thanks to the convenience and reasonable pricing of Netflix and the like, that doesn’t mean that Disney – or ESPN for that matter – will be victims of this shift.
Like every other major media company (e.g. Viacom, (VIA) , down 14.22%, Time Warner Inc. (TWX) , down1.25%, 21st Century Fox (FOX) , down 6.74%), Disney is the victim of a bit of knee-jerk panic on the part of investors who are beginning to see that the media landscape is dramatically changing forever. However, unlike their competitors, the Disney empire offers a product with its own distinct culture that is all but impossible to replicate – including, but certainly not limited to ESPN.
Analysts Strike Out on Questionable ESPN/Netflix Comparison
It’s not surprising that Netflix is popular: It’s convenient, you can almost always find something worth watching, it features a lot of diverse original content, and it’s priced very reasonably (especially if you steal your roommate’s account). Yet, nothing on Netflix is even remotely comparable to the visceral thrill of live sports, or up-to-date sports commentating, for that matter. At the same time, professional sports are as popular as they’ve ever been (see the NFL, NBA, MLB, and UFC in the US, FIFA around the globe), and there’s no network anywhere as synonymous with sports broadcasting as ESPN.
So what’s to account for the drop in subscribers? Most likely, ESPN is a short term casualty of a chaotic marketplace that media consumers are still trying to make sense of. Once the dust has settled and traditional cable packages are dead and buried, don’t be surprised to see ESPN become a common fixture of their regular entertainment diet. What seems far less likely is that former SportsCenter fans are just so taken with Kimmy Schmidt and BoJack Horsemen that they completely forget about their obsession with in-depth game analysis and witty sports broadcasting.
Never Question Allegiance to the Disney Empire
Disney has taken the brunt of the cord-cutting panic that’s swept through Wall Street this week, but that has a lot more to do with their stunning success thus far in 2015 (the stock is still up 13% year-to-date) than with any fundamental weakness in the company. In fact, of all the big media conglomerates, Disney is the only one that can be definitely be counted on to survive and thrive in the changing media landscape. After all, even if a network (or whatever the streaming version of a network would be) comes up to challenge ESPN, nobody can boast anywhere near the level of loyalty that Disney enjoys from their fans.
Many parents count on Disney to babysit their kids when the day gets hairy, and when those kids grow up, you better believe they’ll want to share their deeply engrained Disney experience with their own kids. For millions, Disney isn’t just a brand, it’s a culture – and when it comes to their properties like Marvel, and especially Star Wars, it’s quite literally a religion.
Look, Netflix is doing great, and there’s every reason to believe it will continue to for the foreseeable future….but a Netflix feast is not necessarily a Disney famine. In fact, with nearly 100 years of beloved cartoons, movies, TV shows and all manner of entertainment to fall back on, it’s not a stretch to imagine Disney plucking up their Donald Duck, Luke Skywalker, Tony Stark, Anna, Elsa, and Kermit the Frog and starting their own streaming service. In fact, Waltflix might be the first service to give Reed Hastings a run for his money.
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