ESPN, once the crown jewel of Disney’s cable empire, is now dead weight. As cable cutting becomes more and more popular, ESPN remains a premium channel that can often cost extra to keep in a cable package or be added on. At the moment, ESPN is struggling to compete in the new digital television world, and laid off about half of its team to cut costs. But is that enough?
Here’s Why ESPN’s Financial Problems Outweigh the Benefits of Ownership for Disney
The Walt Disney Company released a solid earnings report on Tuesday, beating Wall Street estimates in spite of ESPN. Disney is seeing a stellar year between blockbuster movie releases, licensing fees, and theme park profits. But Disney’s media division, which ESPN lives under, is slowing down. The company saw a 3 percent decline in operating income to $2.22 billion. As reports show that ESPN lost roughly 2 million subscribers in 2016, Disney needs to evaluate whether or not the company should hold onto a past treasure or cut it loose.
Disney CEO Bob Iger says the company is encouraged by digital services such as Sling TV and Playstation Vue, which feature ESPN, and is planning to launch an ESPN subscription streaming service to push for standalone subscribers, similar to HBO Now and other premier channels. Except, those channels feature high end content constantly being released and see subscriber increases, while ESPN is losing subscribers. That’s the equivalent of buying a shirt in a different color because the first one doesn’t fit — your problem still exists.
ESPN is hemorrhaging money. The network is responsible for an 11 percent drop in operating income for the media division in Q4 2016, to go with the 3 percent drop this past quarter. One of its flagship programs. Monday Night Football, is steadily losing viewers and advertisers, but still has to pay about $2 billion each year to the NFL. Add onto that $1 billion to the NBA, plus costs to air other sports, and ESPN begins to look expendable.
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Without ESPN, Disney would be seeing phenomenal growth and earnings all around. Theme park profits are up 20 percent, and Disney’s new Shanghai park has seen visitor growth climb significantly faster than the company projected. Movie profits have shot up 21 percent, with Disney’s Beauty and the Beast live action remake earning enough to become the highest grossing PG rated movie of all time in the U.S. And that doesn’t take into account licensing profits, which tend to earn far more than box office earnings.
Watch the video from CNBC about ESPN’s effect on Disney:
A sale to CBS, Time Warner, or even Amazon or Apple could bring in billions in revenue while saving the company billions in operating costs. It just makes sense for Disney to follow ESPN subscribers’ lead and cut the cord. Shares of The Walt Disney Company (DIS) dipped on the reports, but will almost certainly bounce back UP.
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