On Wednesday afternoon, Walt Disney (DIS 112.55, -0.48, -0.42%) disclosed in its
annual report (Form 10-K) that it lost another 2 mln domestic ESPN subscribers
in FY18 (October), bringing its estimated total to 86 mln.
ESPN has now lost 2 mln domestic subscribers for each of four years in a row after the figure peaked at 100 mln in 2010.
The Worldwide Leader in Sports continues to lose subscribers as consumers “cut the cord” -- opting to stream content online instead of paying for an expensive cable bundle. Netflix (NFLX) and YouTube along with social media outlets like Facebook (FB) have cut into traditional television viewership.
As a result, Disney went on the streaming offensive by launching a direct-to-consumer (DTC) ESPN subscription service called ESPN+ in April to combat lower subscribers through cable distributors. In September, Disney said the $4.99 per month offering had reached 1 mln subscribers.
While Disney looks to recoup lost business at ESPN, it is also launching a streaming service for its coveted Disney content, in direct competition with Netflix.
That offering will be priced similarly to ESPN+. This new business model seems very necessary, yet investors are somewhat concerned about the uncertain economics and the ramifications it will have on business. It will take time to scale and improve financial results as investments (higher costs) will weigh on profitability near-term.
Still, even before acquiring non-core assets from Fox, Disney was the strongest traditional media company in the world. Disney's film studios, outside of its same-name landmark, include Marvel, Pixar, and Lucas Films, among others. The film slate for next year is incredibly strong, with remakes of Dumbo, Aladdin, and The Lion King and new chapters of Toy Story, Frozen, and Star Wars all upcoming.
Disney has a $167 bln market cap and trades at a near-market multiple under 16x earnings.
- OUR VIEW
- LEARNING CENTER