Why ESPN Is So Important For Disney Right Now

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What's going on?

Disney posted earnings that beat analyst expectations but the stock sold off 9% - mainly because its flagship sports channel, ESPN, lost subscribers.

What does this mean?

Viewers pay a monthly fee to subscribe to ESPN (as they do to Disneys other cable channels) and investors are worried that as viewers stream more content online that fewer will pay for traditional television. This is certainly true to some extent most young people now stream their favorite shows. However, sports remain one of the few domains where viewers want to watch content live. So chances are that ESPN isnt going to disappear.

Why should I care?

  1. Cable subscriptions account for half of Disneys profits, so investors understandably get nervous when profit growth slows. However, Disney might solve this problem by looking to sign-up users to a streaming version of ESPN (and some of its other cable channels).
  2. Before the results, Disneys stock was trading at an all time high and had gained 30% in the past twelve months. While yesterday'sstock move is dramatic, its probably part of a natural pull back from the peak.
  3. Disney also has diversified earnings, with its movie studios (new Star Wars movies are coming later this year) and theme parks. Once it figures out its new strategy for delivering valuable content, especially ESPN, to viewers, the stock should recover.
 
Originally posted as part of the Finimize daily email.

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