The success from the December movie hit “Star Wars: The Force Awakens” catapulted Disney world Co. to its best quarter in company history, posting record profits and attendance statistics for its theme parks.
And yet, shares of the Burbank, Calif., media giant dropped 3.2 per cent to US$89.40 on Wednesday at 2:30 p.m. ET. In fact, Disney’s stock continues to be fodder for bears since it came close to its 52-week full of November. So far this season, amid volatility in equity markets, its shares have plummeted 16 per cent.
In the quarter, operating income at Disney’s large media networks unit, which includes ESPN, ABC and Disney Channel, contracted six per cent. The company attributed the decline towards the timing of six college football bowl games, which increased programming costs. But investors in U.S. media companies happen to be worried about what shrinking subscriber bases will do to advertising rates, as some viewers forego traditional cable subscriptions in favour of smaller cable packages, online streaming or illegal methods.
Fewer ESPN subscribers implies that the network generates less revenue from affiliate fees, which is the amount a content owner receives in the total price of traditional cable subscriptions. “Until there are more positive data points on ESPN’s affiliate fees,” analysts at BMO Capital Markets wrote, “we expect the multiple to remain under pressure against the backdrop of rising profitability and estimates for the company as a whole.”