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Disney (DIS) Loses ESPN Subscribers to Rising Competition

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The Walt Disney CompanyDIS is having a fabulous year. Stupendous success of its movie business, theme parks and Consumer Products divisions has led to a 26% increase in the stock price so far this year. However, things don't look so rosy at its Cable Networks division, especially at the ESPN network.

Per the company's SEC filing, ESPN, one of the primary revenue and margin drivers, has been losing subscribers pretty regularly. ESPN has lost nearly 7 million subscribers in the last two years as the number of cord cutters continues to increase. At the end of the fourth quarter of fiscal 2015, ESPN had a subscriber base of 92 million in comparison to 95 million at the end of the prior-year quarter and regressing to the level it had a decade ago.

For some time now, Disney's primary cash cow ESPN has come under immense pressure as the Pay TV landscape continues to alter owing to the migration of subscribers to online TV. Falling subscriptions will have a telling effect on the network's ad revenues.

In 2014, cable providers had to shell out over $6 per person to relay ESPN. Moreover, for ESPN, cost of obtaining telecast rights is rising sharply as competition with other networks like that of Twenty-First Century Fox, Inc.'s FOXA Fox Network heats up. In Oct 2014, ESPN paid a whopping $1.47 billion for 2016-17 NBA rights.

Analysts apprehend that things for ESPN are likely to get even more difficult going forward. Though live sports remains a lucrative option, fees for obtaining content have gone sky high, which in turn will raise carriage fees. So, if the number of subscribers continues to slide, ESPN will find it difficult to boost its top line.

Further, management expects cable programming and productions costs to increase in the low-to-mid single digits in 2016 as ESPN does not have any major sports contract.

At present, Disney carries a Zacks Rank #3 (Hold). A couple of better-ranked media stocks are AMC Networks Inc. AMCX and Salem Media Group, Inc. SALM . Both carry a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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