Despite the staggering numbers run up by blockbuster movies such as Star Wars: The Force Awakens and Captain America: Civil War, Disney’s second-quarter revenues and profits came in below analysts’ expectations for the first time since March 2011 Tuesday, and concerns about ESPN appear to be the main reason why. The company’s profit hit $2.14 billion, or $1.30 per share, an improvement over last year’s Q2 $2.11 billion ($1.23 per share), but well below the average analyst expectations of $1.40 per share. Revenues also grew to $12.97 billion from $12.46 billion year-over-year, but that was below the average expectation of $13.19 billion. That led to Disney stock dropping six per cent in after-hours trading, despite studio entertainment revenues rising 22 per cent. That drop also came very quickly:

Disney’s cable networks division (which includes the ESPN networks) saw its second-quarter revenues fall 1.86 percent to $3.96 billion, a drop of over $73 million. That’s still above Disney’s other divisions (parks, studio, consumer and interactive), but that illustrates just how important the cable networks are to the whole company and how a downturn there has the potential for a wider impact:

The cable networks’ downturn is far from the whole miss on the targets (another part is the decision to pull the plug on Disney Infinity and get out of publishing videogames, which will involve 300 layoffs and a $147 million charge for the quarter), but it’s a significant part. Those network problems aren’t all about ESPN (another big one is that the transition from H2 to VICELAND has been expensive), but the Worldwide Leader is a substantial part of them, especially as ESPN ad revenue declined by 13 per cent in the quarter. There is some good news on the networks front, as operating income for the division rose 12.34 per cent thanks to lower costs and higher distributor fees, but that doesn’t seem to be enough to stave off those concerned about where ESPN’s going.

Of course, things aren’t entirely apocalyptic yet. It’s notable that Disney stock was up 17 per cent over the last three months ahead of this call, so even this after-hours drop still has it ahead of where it was. ESPN also is making some progress on getting into skinny bundles, which may help reduce the impact of cord-shaving. However, the recent talent drain has many concerned about where ESPN’s going, and the situation with their rising rights fees and dwindling subscribers is certainly problematic, as is that decline in ad revenues. For now, it looks like ESPN’s declining performance is a key factor weighing down Disney relative to expectations, and it’s doing so despite Disney’s vast success in other areas. We’ll see if that continues.


About Andrew Bucholtz

Andrew Bucholtz has been covering sports media for Awful Announcing since 2012. He is also a staff writer for The Comeback. His previous work includes time at Yahoo! Sports Canada and Black Press.

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