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Will Disney's Good Show Be Marred by Troubled ESPN? - Analyst Blog

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 28.3% increase in stock price so far in the year. Yesterday, Disney hit an all time high of $119.90, before closing a notch lower at $119.58 as Ant-Man debuted on top with $58 million in collections during the weekend at the domestic box office.

However, Disney is facing some trouble at its Media and Cable Networks' division, especially at the ESPN network. As per sources, ESPN, one of the company's primary revenue and margin driver, has been facing deteriorating profits and reducing subscriber base for some time now. ESPN has lost nearly 3.2 million subscribers in the last year as number of cord cutters continue to increase.

ESPN is synonymous with sports programming across United States. It is one of the most popular networks in the country. However, as people opt for 'slimmer' cable subscriptions, expensive channels like ESPN are falling behind.

As per sources, cable providers have to shell out over $6.55 per person to relay ESPN. Moreover, for ESPN, cost of obtaining telecast rights is increasing tremendously 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' observe that things for ESPN likely to get difficult going forward. This is because, though live sports remains a lucrative option, fees for obtaining content has gone sky high which in turn will raise carriage fees. So if the number of subscribers continues to fall, it will become difficult for ESPN to boost its top line. Moreover, for ESPN, going over the top like HBO Now would mean that cable providers will start offering ESPN ala carte, again leading to fall in subscribers.

As a result, parent company Disney has taken serious measures to counter the declining profit trend at ESPN. ESPN is expected to cut nearly $400 million over the span of next two years.

Now the question is, will Disney's troubled sports network throw it off balance? We believe that though ESPN remains Disney's primary cash cow, the company's other segments, especially the movie business, is likely to provide ample cushion to the top and bottom lines in the future. A robust pipeline of 21 movies running up to 2019 and subsequent opportunities for its Consumer Products division will help Disney to sustain its momentum. Moreover, Disney's theme parks have always been the company's safe bet and will continue to be so in the coming days.

At present, Disney carries a Zacks Rank #3 (Hold). Better-ranked media stocks include AMC Networks Inc. AMCX and Gray Television, Inc. GTN . 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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