After seeing company stock plummet 20% since November 2015, Disney (DIS) made a big play to address growing concerns about its ability to thrive in the television landscape as cable companies face “cord-cutting”.
Disney Goes Out of Park |Cable Network A Big Hit
Cable bundles are quickly becoming a thing of the past. Consumers are opting for cheaper custom packages or “skinny bundles”. Many viewers even opt out of cable packages altogether. As a result, Disney saw its cable and television business take a big hit. However, the biggest hit was laid on ESPN, the crown jewel of Disney’s cable network.
Recently, Disney announced a better-than-expected fiscal third quarter, with help from the opening of Shanghai Disney, some box office hits, and its newest home run – BAMTech.
Disney will pay $1 billion for a 33% stake in BAMTech, a video streaming company formed by Major League Baseball, pairing the acquisition with the launch of a new online ESPN service this year. Disney now has the technology they need to offset the cord-cutting of ESPN and other Disney networks.
The company has not had an easy year. A child was killed by an alligator at the Disney resort in Orlando, FL. Terrorist attacks in Europe significantly hurt park attendance there. But the biggest problem has come from Disney’s cable television unit amid subscriber declines.
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While the deal may not contribute to Disney earnings until 2018, it makes strategic sense. The deal does give Disney a huge stake in a streaming platform already being utilized by other entertainment companies serving 8 million subscribers – most notably HBO Now.
One concern for analysts is cannibalization. What will this move do to ESPN? Disney’s CEO, Bob Iger, made comments suggesting that DISNEY is holding onto the multichannel bundle, and none of the currently aired content will be available on the new streaming network, meaning viewers would still have to subscribe to multiple packages for full coverage.
NewsBeat Social featured this acquisition two weeks ago on their channel:
As JP Morgan’s Alexia Quadrani remarked, “Patient investors will be well rewarded coming in at current levels”.
Stick with Disney for the long term.
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