What's going on?
No happy ending! Immediately after it reported financial results that fell short of investors’ expectations, Walt Disney, the owner of TV channels like ABC and sports channel ESPN as well as its eponymous movie studio and theme parks, saw its stock fall 5%.
What does this mean?
It was the first time in 5 years that Disney’s profit fell short of expectations – so that’s probably one reason that the stock fell so much (i.e. it was quite a surprise). But more specifically, revenue from media networks – the division that includes ESPN – was weaker than expected. That feeds into fears that Disney is struggling to adapt to television “cord cutting.” ESPN has been a huge driver of profits for Disney but the channel has historically been “bundled” together with other channels that cable customers pay a fee for. As demand for such bundles wanes, investors are concerned that Disney will struggle to sell ESPN’s content in other ways.
Why should I care?
For the stock: It’s film studios versus TV networks. Disney’s movie business is performing extremely well. Franchises like Star Wars and Marvel Entertainment are delivering strong, steady revenue – and should do so for years to come. The success of its movie business should also feed into increased revenue at its theme parks around the world. The question for investors is whether it will be enough to make up for any weakness in its TV business.
The bigger picture: Maybe live sports on TV isn’t that valuable after all. It is sometimes assumed that live sports are immune to the threat of streaming. You may not sit down on Tuesday night at 8pm to watch ABC’s latest hit sitcom, but you’ll watch Monday Night Football (or Arsenal vs. ManU). But what if that’s just not true? If the huge availability of other, high-quality media content is dragging eyeballs away from live sports then perhaps ESPN, Sky and others are paying far too much for television rights to show live sports. If so, that could have huge repercussions for the value of professional sports franchises and the salaries of professional athletes.