The Worldwide Leader In Sports also appears to currently be the worldwide leader in hurting its parent corporation’s stock prices. Disney had what CEO Bob Iger called the company’s “greatest single quarter in history” during an earnings conference call Tuesday, thanks to the success of Star Wars: The Force Awakens, but its stock still was down about 3 per cent in trading Wednesday, near $89.50 per share. That’s almost a 26 per cent slide from the high of $120.65 it hit Nov. 23, and that was before the release of The Force Awakens. That decline appears to mostly be thanks to analysts’ concerns about ESPN’s rising rights fees and falling subscribers (leading to an approximate annual hit of $3.5 billion they’ve had to make up), which might be an even bigger deal than Star Wars (which just crossed $2 billion in global box office revenues). Even Iger’s comments that ESPN had recently experienced an “uptick” in subscribers weren’t enough for analysts such as CNBC’s Jim Cramer:
The lack of clarity on how to quantify an “uptick” in terms of the increased number of ESPN subscribers is hurting Disney stock, CNBC’s Jim Cramer said Wednesday.
“We don’t know what uptick means,” said Cramer on “Squawk on the Street.”
…”We’ve actually seen an uptick recently in ESPN subs. We did reference, in candor, in the August call, that we had seen some sub erosion, and that in fact was the case. But the last few months, in particular, have been encouraging,” Iger said.
…”If they said listen [subscriber growth] is X, which is much better than you think, that could have helped, but we didn’t get that,” said Cramer.
Analysts and investors’ worries aren’t solely about not being told the subscriber numbers, as there are released numbers to be concerned about as well. Yes, Disney reported a profit of $1.63 per share (beating the consensus estimate of $1.45), and yes, revenue also beat estimates, with even the cable networks division (which includes ESPN) bringing in $4.5 billion, above the estimate of $4.4 billion. However, operating income at the cable networks dropped to $1.2 billion, a five per cent slide, “due to a decrease at ESPN.” We don’t know exactly what the numbers for ESPN alone are, but the information that is out there has some investors concerned enough to drop the stock.
It should be noted that ESPN isn’t the only sports media company or stock under fire lately. CBS did well on the Super Bowl, but one area of concern for its investors is the new Thursday Night Football deal that has them paying even more per game (even if it allows them to pay less overall thanks to splitting the package with NBC); Business Insider’s Bob Bryan wrote earlier this month that both networks are “almost guaranteed to lose money” on TNF. CBS’ stock was around $43.50 Wednesday, up from Tuesday’s close of $42.65 but a long way from the high of $50.32 it hit Feb. 4 and the above-$50 mark it was regularly trading at in November. NBC parent Comcast has its stock at about $56.50 Wednesday, down from almost $63 in November. Fox stock was trading around $24.80 Wednesday, down from $30.63 in November, and they’re facing continued struggles with FS1 and just had to write down their DraftKings investment by 60 per cent.
Those are all massive companies with interests well beyond sports, so this isn’t solely about the rising costs of sports rights. However, the growing costs associated with sports do appear to be a factor. Morgan Stanley analyst Benjamin Swinburne told the Associated Press that major media companies have invested $130 billion in sports rights over the next several years (with ESPN accounting for 29 per cent of that), but those costs are increasing faster than revenues from those broadcasts. He said sports rights “may ultimately turn into more risk than reward.” That appears to be what we’re seeing with ESPN and some of these other media companies, and many investors and analysts aren’t optimistic it will change.
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