It is not so long ago that the combination of theme parks, movies, news and ESPN made Walt Disney Co. (NYSE: DIS) a darling of Wall Street. Cracks in its business model have driven its shares down 8.27% to $92.29 this year, which makes it the worst performing Dow stock so far in 2016.
The Dow Jones Industrial Average has risen 6.47% this year to 18,552.57, which puts it near an all-time high. Only seven Dow stocks are down in 2016.
In the most recently quarter, Disney revenue growth was sluggish. Revenue rose 9% to $14.227 billion. Net income was up 5% to $2.587 billion.
The media networks segment’s revenue, which includes ESPN, was up 2% to $2,506 billion. Segment net revenue was flat at $2,371 billion.
ESPN was described as healthy, with high program costs and an increase in affiliate fees.
However, Sports Illustrated laid out the ESPN problem:
The transition to digital streaming services has exploded over the last few years. Previously, fans would have to tune in each week for their favorite shows or live TV events, but it seems as though entertainment sources are realizing the value of 24/7 streaming capabilities. Now, new trends have emerged where producers simply upload entire seasons of a show all at once or offer a one-time payment to watch a specific sporting event.
As this trend has taken off, other global cable and satellite television companies have noticed a decline in their services. ESPN has experienced firsthand this increase in households forgoing cable packages as they are rapidly losing customers. From 2013–15, ESPN lost around 7 million subscribers, equating to about $1.3 billion in revenue. Sadly, ESPN predicted steady cable company growth overtime like usual, but now they seem to have learned their lesson and are making a move towards streaming.
Granted, Disney is not alone. Other victims of the trend include Time Warner Inc.’s (NYSE: TWX) CNN and HBO. Each has developed products to the cord cutters who have abandoned cable TV. But the models are in early stages and may not work at all.
Investors are worried about ESPN, which means they are worried about Disney.