Will A Crumbling ESPN Sink Disney Stock?

A cross-section of Wall Street analysts have raised the alarm regarding Walt Disney’s leading cable channel ESPN and its subscriber loss problem. ESPN represents 75% of Disney’s cable revenues and a weak ESPN channel can be disastrous for the entire company. How will Disney cope with this unfortunate trend?

Walt Disney (NYSE:DISWalt Disney (NYSE: has been one best-performing stocks in the Dow Jones over the past couple of years. This year has not been any different with Disney stock up 26% YTD. But this type of performance might now be in danger, with Disney’s cash cow ESPN continually losing subscribers and revenue. Cable networks are Walt Disney’s most important revenue and income segment, contributing about 44% of revenue and 58% of the company’s operating income. ESPN is the most important member of the cable network, representing 75% of Disney’s cable revenues. A crumbling ESPN therefore has real potential to take a severe hit on Disney’s top and bottom lines.

Although Disney CEO Bob Iger has largely been downplaying ESPN subscriber loss, some analysts believe the problem could get far worse in the coming years. Fund manager Eric Jackson is one of the analysts that think ESPN subscriber and income loss will not moderate as many believe but will instead get worse as the quarters roll on. Jackson pointed to Disney’s past SEC filings that suggest ESPN subscribers peaked at 99 million in 2013, and have now fallen to 92 million as per Nielsen’s current estimates. Jackson estimates that ESPN is receiving $650 million less in affiliate fees and $250 billion less in advertising revenue than it did just two years ago. Affiliate fees refers to the fee that cable providers such as Comcast pay ESPN for rights to broadcast the channel.

Is The Problem That Bad Really?

There is no question that Disney is feeling some heat from cord-cutting as consumers prefer other distribution channels such as Netflix, which is increasingly competitive, while other subscribers select ‘‘skinny’’ bundles of channels that exclude costly ESPN. ESPN is also being plagued by another problem that Jackson did not talk about rising programming costs which are squeezing margins. ESPN programming costs have risen about 50% in four years to $4.50 per subscriber in 2015.