Media and theme park giant Walt Disney (DIS) has been one of the bull market’s best performers. Steady growth, consistent earnings, and a series of smart strategic moves helped propel the stock much higher in recent years.
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Many investors assumed the box office smash “Star Wars: The Force Awakens” would lead to another sizable leg up. The film did gross $529 million in its opening weekend after all. That was an all-time movie industry record.
But it just isn’t happening. Disney shares topped out in late July, made a lower high in the fall rally, and are now some $15 off their summer peak. Turns out the Dark Side of the Force isn’t the biggest threat to Disney. It’s the nation’s cord cutters, and the impact they’re having on the firm’s cable business.
You see, Disney owns the ESPN cable network. That business accounts for almost half of the overall company’s operating revenue, and about a third of its sales. ESPN has long dominated the cable sports business, allowing it to charge more than $6 a subscriber to the cable and satellite service providers. That cost is then folded into the price of channel bundles that many Americans subscribe to.
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| Star Wars hasn’t been enough to save Disney shares. |
But an increasing number of cable customers are “cutting the cord” — canceling their service and choosing to watch TV directly through the Internet or dedicated streaming services. That has investors worried sick about slumping revenue and earnings growth at the important Disney division.
The firm revealed last month that it bled more than 3 million ESPN subscribers in the fiscal year ended Oct. 3. It now has only 92 million subs, the lowest level in 10 years. Operating income growth at the network has already dropped from the high-single-digit rate to the mid-single-digit rate, and that could slow further in the quarters ahead.
There’s another problem, too. One analyst at BTIG Securities recently downgraded Disney to “sell,” pointing out that ESPN has spent billions to acquire rights to various sporting events. The firm shells out roughly $2 billion a year to broadcast select NFL games, and it’s poised to spend $1.4 billion for NBA matchups next year. If it can’t spread those costs out over an increasing subscriber base, it could hammer results down the road.
Long story short, one of the generals of the Dow Jones Industrial Average is under attack — and it’ll take a lot more than a light saber and the Light Side of the Force to fight this enemy off!
So what do you think about Disney’s woes? Can the media giant get back on track, or is the threat from cord cutters too serious? How about the Star Wars phenomenon? Will future ancillary revenue (ticket sales to the sequels, toy licensing revenue, future theme park attractions tied to the movies, etc.) eventually put the ESPN concerns to rest? Do you own Disney shares? Why or why not? Share your thoughts below.
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The markets are always trying to tell us things — we just have to do our best to listen to their messages. I wrote about interest rates and what they’re doing and why yesterday. Then overnight, several of you weighed in with your thoughts.
Reader Peter said: “The Federal Reserve has its head in the sand when it comes to understanding the deflationary forces at work. They are deathly afraid of debt deflation and are putting on a brave face in hopes that their credibility will not go down the tubes.”
Reader Donald L. said: “I’m not sure what Fed interest rates are saying, but I suspect the absence of movement in commercial rates is saying that there is little loan demand at any rate due to reduced business activity. By any measurement or indicator, this is not a good thing and portends poorly for the economy next year.”
Reader Doglover echoed the comments about the lackluster economy, saying: “If you are a regular reader of the weekly (public) report from ECRI, you are unlikely to be very surprised by what is happening. They have been reporting that the U.S. and world economies are in a long-term downtrend with no clear end in sight.
“Although productivity may be increasing, the year-over-year rate of growth has been declining for years. Inflation is falling steadily, and there is little indication that it is going to increase anytime soon There is oversupply of goods worldwide, so companies have no reason to hire workers to increase production and as a result, workers have declining resources to purchase goods.”
On the other hand, Reader $1,000 Gold said it’s not the time (yet) to worry about a slumping economy. The comments: “We have one more good up wave coming up before this ends in a recession a few years down the road. It ain’t over until the Fed inverts the yield curve.”
I appreciate the observations. If you haven’t added yours to the mix, make sure you hit up the comment section below.
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You know that credit cycle turn I’ve been talking about for months? It manifests itself in many ways, one of which is the dramatic tightening in IPO market conditions. Per Reuters, only $28.7 billion in initial public offerings managed to get out the door in 2015. That’s a whopping 48% plunge from a year earlier, and it makes this the worst year since 2009. As one analyst said: “It just felt good and then the wheels came off” starting in the summer.
Deutsche Bank (DB) has been targeted in several regulatory and legal probes, so it’s not exactly surprising to hear the giant German bank may have conducted up to $10 billion in trades to help Russians illegally move money around. U.S. investigators are probing if Russian citizens used DB to conduct “mirror trades” — simultaneous buys and sells in Russia and abroad — to get around reporting requirements, according to Bloomberg.
Burritos, anyone? More E. coli cases were identified in a handful of states, including Kansas, North Dakota, and Oklahoma, according to the Centers for Disease Prevention and Control. They were linked to the embattled restaurant chain Chipotle Mexican Grill (CMG). But the company says it is changing the way it sources and processes ingredients to increase food safety.
Congratulations to Space Exploration Technology Corp., or “SpaceX,” for its successful launch and return of an upgraded Falcon 9 rocket. The firm headed by Tesla CEO Elon Musk launched a bundle of small satellites into orbit, then managed to land on a barge – the first successful roundtrip after a handful of failures.
What do you think about the late-year collapse in IPO activity — does it bode poorly for 2016? How about the latest food scare at Chipotle? Any thoughts on the success of Musk’s rocket system? Use the website here to comment if you get a chance.
Until next time,
Mike Larson
P.S. Did you know Larry Edelson’s VITAL new report, “Supercycle Bonanza!” could prove to be the most PROFITABLE report you read all year?
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Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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My wife and I invested in Disney over 25 years ago and have never looked back. There were some shakey years under the direction of Eisner, however, he’s out and Disney lives. Every time there is a dip, Disney pops back with another hit. Realistically, not all will be home runs, look at the market in general. If all hit home runs we would all be our own Buffetts. Reinvested dividends continue to accrue and other business deals will evolve and continue to add to the overall value. We’re still making money.
ESPN woes are NOT new news. I do find it very interesting that Mr Greenfield (of BTIG) conveniently drops his “Sell” rating the Friday of the Star Wars premiere. I wonder how many of his “friends” we’re Short DIS that day, knowing the movie was going to blow out the box office and the “longs” were counting on it.
Wall St. at its worse.
As to the state of the economy, my wife and I are retired and moved to a very nice area of Williamsburg, Virginia, close to the Colonial downtown area. The area also has a first class University in William and Mary; but here’s what i see, in the two years since we moved here there are at least two nice strip Malls, both close to luxury Apartment complexes, both fairly new which are around 80% empty and have been since we moved here. Also, some very nice homes have also been on the market since we moved here I also see lots of people literally counting out change to pay at the Supermarket. What it all means, who knows, but anyone who thinks the economy is improving probably lives in an area such as Daughter, guess where, Northern Virgina where the government spends a lot of our tax dollars on Contractors.
I own shares and regardless of “SELL” I would not sell any of them. Each one gives out dividends better than any bank interest and Disney will last forever. The facts are that Disney went way up after buying marvel, and I bet you that even if people might not believe it, Disney will go up once more. I tell you what I would do. After it goes down to its new estimated price of $90, I’d buy again, because Disney and AAPL look very similar in terms of what people though at first about the newer iPhone. People just don’t know it yet.
May the Force be with you.
I own Disney and find Mr. Greenfield’s comments about ESPN very suspicious.
I heard his interview on CNBC. When he was pinned down he said that he was lowering Disney’s stock because in 2017 and 2018 they might have too many cancellations for ESPN. He gave no credit to Star Wars or the Shanghai Theme Park.
I think he should have given his call at the end of 2016 not in 2015 for forward years of 2017 & 2018
It’s more than just people dropping cable. The insinuation of politics into every area of our lives by Disney Media companies and others has taken the joy out of everything.
The wholesomeness that was once associated with Disney Productions is now gone.
I’m fed up and so are millions of others. People want to pick and choose for themselves not be slaves to cable.
“People want to pick and choose for themselves not be slaves” Remember this on election day.
Great Point, I have said the same thing to my wife, is it necessary for the media to insert their political bias in to shows that don’t need it, to me it is unnecessary and is probably done to ‘promote’ a particular candidate or party.
Two answers here: 1) Does anyone remember Eastman Kodak? Cellphones killed them. Long term, Cable Co’s are now a short trade. The new technologies are making that particular business model obsolete, like Kodak’s. 2) There are few new start ups in the world. People have no jobs, nor job security. So who will buy all the new wonderful toys that Robo-automated factories produce if there is a declining middle class because there are less and less jobs for humans? – In Management there is a thesis called the “Theory of Constraints” in other words “Bottlenecks”. It works pretty well in order to open efficiencies and efficacies. However once you’ve solved all internal problems, the last bottleneck becomes the market place. If there are not enough people who’ll buy your product, either because they don’t like it or can’t afford it or because it is now outmoded. in the words of Peter F.Drucker, “Find something else to do”. So prices fall to equal demand, if demand continues to also fall and if there is a big confluence of falling prices, for various products and services,then we have general deflation. Welcome to our world.
JohnLamb, I agree with some of your statements (more or less).
However, the way I see it is that, the real base of the socioeconomic anomalies and issues we are observing (in the USA and world-wide) is – the world-wide economic system itself – which is decadent and at a “dead end”, and is not able to generate long-term recovery by economic means alone.
Hence, the reason, regardless to what governments and central banks do (or not do), the most that can happen is a TEMPORARY weak economic recover (for a year or 2), and then we are back to perpetual crisis/recession. However, it is more likely that there would be NO significant recovery (in the real economy) as the decadent world-wide economic system (slowly) sinks towards total chaos/collapse and/or WW3.
Yes you hit the nail on the head. So who will buy all the new wonderful toys that Robo-automated factories produce if there is a declining middle class because there are less and less jobs for humans? We will all end up with our nose pressed against the store window
Gordon, this sounds familiar, in the 1940’s I use put my nose on store windows and wonder how can I get money to buy those tings…therw was little or no money in our house.
I confess I’m a cable cutter. Two reasons…the cable fees are way too high, ….and my wife and I are sick (NO PUN) of all the medical ads on TV; They give us headaches, nausea, acid indigestion, vomiting and on bad days might cause blindness or death. Excessive watching causes stupidity and can lead to ignorance. The canned laughter on the sit coms is incredibly annoying so those go off ASAP, and as soon as an ED add comes on my wife turns the TV off or goes hunting on Netflix.
I’d prefer the (non-profit) BBC approach where for a small annual fee you get good programming, balanced global news, no Adds, and very little sports.
If ONLY someone would offer pay for what you want….I had heard Apple was going to do it but what they have is nothing.
Your comments on the drug ads are funny…..my wife and I have had the exact same thoughts….after listening to the dire warnings about all of these drugs with the STRANGE names….(and the side effects!! i heard one recently that warned of incontinence, going to dizziness, add in gas and then possible blindness or death…as you noted)…..It is a wonder anyone takes that stuff.
Ditto on the drug adds.
I agree, and how about the fact that people who apparently take ‘drug’ are seen hiking through the wilderness after being almost unable to move beforehand. They obviously think we are stupid but unfortunately a lot of people seem to believe there is pill for anything that ails you,
I know I have said this before, but GET RID OF THE FED. It is the main trouble maker, and always has been if it were`nt for the fed we most likely would not have had the great depression!!!!!!!
Amen, Richard. We used to have small recessions and “panics” in the 1800s. Now we have big ones (none dare say depressions) such as the current one that lasts for decades. And this one hasn’t even started yet.
Mike,
You are right on as usual. As the baby boomers get older, they are going to look for places to cut costs. They will remember that when they were kids, their parents used an antenna to pick up local t.v. stations. They are going to find out, with a little research on google and youtube, that they can buy a high definition antenna and get a bundle of stations they only dreamed of as a kid…include an internet connection and wifi and they won’t even miss cable and satellite networks. My advice…look for t.v. antenna manufacturing companies and dump your cable and dish network stocks.
The Disney story reeks of supreme irony. I was a 15 year ABC employee, when Disney marched in like the Nazis into the Netherlands; they proceeded to essentially destroy what until that time had been America’s leading network, both TV and Radio. Select Union-active personnel were harassed out and blacklisted; the Union sat back and did nothing. Many long-time ABC hands, notably experienced Radio journalists among others, left or were driven out to be replaced by sniveling, pimply-faced Disney sycophants. Worse still was the fate of many long-term, extremely capable Management people who were given literally hours to “clear out” of their offices (to be replaced by Company stooges who drove various ex-ABC ventures into the ground), or actually face trespassing charges! When Fox Business straight out asked Michael Eisner why they bought ABC, he replied, “because I wanted ESPN”. I still own some shares of Der Maus, left over from the deal made to absorb Capital Cities-ABC. But I will never stop wondering “what could have been” at ABC, if Disney had left the deal alone. Despite being a shareholder, it would be poetic justice to see ESPN drag Disney right down the drain.
Might find it interesting to know that the commercial minutes per hour time on the cable channels is 24 minutes on average. BET has the most averaging a whopping 43 min of commercials per hour. ESPN has the least at just 12 minutes of commercials an hour on average. They could sell some commercial time? Sell the station? Add some programming …
If you own a cable tv company sell now Netflix will be king AND the investment in wireless internet will increase like microwave dishes Because the technology of microwave will get much better This will happen as transistor technogy improves and the speed of transister will increase And we hope that encoding of Intènet gets better to increase security that’s all folks
I think ESPN will follow Starz and make a deal with Amazon prime and probably Netflix to be an additional streaming source at a monthly charge. I have no idea of the gain or loss of viewers, but Disney will not go to the bitter end with the cable companies.
There is another reason the Mouse Company may be in trouble. The Mouse turned into a gutter rat. The Rat has systematically destroyed ABC, the only show I watch is Jeopardy and ABC affiliates buy it out. Watching the clothes go round in the dryer is more entertaining than shows on ABC. The Rat also fired thousands of American IT workers and replaced them with foreign imports, and forced their stabbed in the back former employees to train their replacements or no severance package. Clearly abusing the Federal laws, but using an unfortunate loophole out of sync with the intent of the law. A word or two about drug commercials. How much is the price of a pill jacked up to pay for the ads? It seems the side effects are worse than the disease. It seems they got pills for everything except the side effects of watching drug commercials.
Disney and ESPN will survive- 2 strong brands…!!
Who really cares about Disney or any stock investment right now when governments all over the world are in debt above their GDPs? At some point, when payments stop, this mega debt is what will matter and general overvaluation of stocks.
I am 57 and have been reading Weis related commentary for at least 20 years. It is always gloom and doom. Meanwhile a friend has always invested in Berkshire Hathaway and listened to Warren Buffet and Charlie Munger who are long term bullish on American companies. Guess who has made more money on their investments? Not me. Everyone who comments here speaks boldly, but when one predicts the future your chance of being accurate, or close to reality, is low. I read Weis because it keeps me cautious, but Buffett would have made me rich.
I agree with you J.S. Lyles. Been 20 years for me too. I have been thinking the same thing. I missed a number of opportunities because the world was going to end according to these warnings.
The warnings were timely, but the outcomes were not as cataclysmic. I pulled out of real estate and missed the latest run up. Entrepreneurs adapted to the new environment.
I do value the insights, but I noticed the latest was just a marketing ploy. The end of the world was upon us again as the stock market and the world was going to collapse in October. Only to find it spun 30 days later into a subscription for stock trade listings.
Hey I get it. Weiss needs to eat too. Business is business. I agree we need to be prudent and wise. The maniacs in the Fed, government, and corporate cronies are destroying the world.
But I have a new philosophy. Damn the torpedoes, full speed ahead. Ride the wave to the beach. If we’re all going to die, might as well make the best of it.
He who endures to the end will be saved.
I will be cutting my cable after Christmas. Most annoying to me are the abused animal commercials, followed by the controlled media News networks, followed by the crappy programming which is way over-priced. I prefer watching You Tube to watching tv and with all my sets being smart tv’s, I more than welcome internet streaming of movies for a fraction of the cost. Besides, the alpha waves being broadcast will rot your brain.. so I’ve heard, never know, can’t trust the gov’t anymore. Its just like fluoride poisoning, makes humans more compliant. Besides, I much prefer watching what I want, when I want. So Goodbye Cable TV!
If you live in a nation where a stupid movie or a stupid media can move the stock market needle either way, you might live in a nation of idiots. ROFLMAO…
Mule
$6 per subscriber is pretty hefty anyway, and unsustainable. With that kind of premium, it’s no wonder so many are cutting the cord. They’re going to have to price themselves more attractively and promote themselves to the cord-cutters, or they will be headed for trouble.
Anything good happen today? What ever you focus on will grow. Choose wisely! A well respected business consultant met with a group of executive board members of a large company and they asked him what he thought the next 5 years would be like in the market place. To their surprise he answered, “just about like the last five.” In the next little while he explained his answer, there will be some up’s, and there will be some down’s, the wind blows on us all, it is the set of your sail that determines where you end up. If your waiting for Government, Rep or Dem or the Fed to ensure your future, let me know how that works for you. If it is to be it is up to me. Thank You for Your Time.
BAh! HumBug………….
Disney,Smisney……….
I’ve bought into them all. Don’t give in and never give up but; STOP feeding the beast.
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