The shares of Disney plunged by over 8% amid rising concerns about the effect of the assault on cable network ESPN by the streaming services that have been grabbing large numbers of viewers from the cable networks.
A Wall Street Journal article datelined as far back as 10 March 2015, said that according to the people who had attended a special meeting of the Cable Television Advertising Bureau regarding the falloff in cable viewers, were told, “The primary reason for the steep fall-off in viewership ‘is that’ consumers are spending more time watching subscription streaming video services like those from Netflix Inc., Hulu and Amazon.com Inc.”
The Walt Disney Company released its quarterly results on Tuesday evening and the ESPN component of Disney, which has traditionally been a shining light and money spinner for the company, has lost a lot of its lustre.
Operating income at ESPN, affected by the streaming malady, suffered a drop in operating income of 1.2% year-on-year to $5.1 billion. The importance of this to Disney's operating income is that ESPN contributed a very significant 46% to the total.
Disney also cut its forecast for earnings growth by ESPN for 2016 from a high single digit figure to a low single digit figure. The company said in its quarterly report that lower advertising revenue at ESPN reflected lower ratings and rates, partially offset by more units sold, driven by NBA playoff games. The live sport coverage has traditionally been a major strength at ESPN.
Robert A. Iger, Chairman and Chief Executive Officer of the Walt Disney Company, said in the quarterly report, “We’re very pleased with our performance in the third quarter, with record net income and diluted earnings per share of $1.45, up 13% from the prior year. The strong results across our many diverse lines of business demonstrate the power of our unparalleled brands, franchises and creative content.”
Anthony DiClemente, analyst at Nomura noted that, “ESPN and cable ecosystem related fears may become marginally greater concerns in the minds of investors, this despite the power of the ESPN brand and what we believe to be its ability to benefit from new online and direct-to-consumer monetization potential.” He pointed out that if the bump in advertising from the Soccer World Cup was excluded, revenue from that source would be up by 5%.
Meanwhile, Jason Bazinet, Citi analyst, calculated that the decrease in the guidance figure would reduce the 2016 operating earnings by around $615 million.
This was evidently enough to cause the drop of 9% in pre-market trading in Disney’s shares after the release of their quarterly return.
MT4 Chart: Disney