Walt Disney Co (NYSE:DIS) was off about 1% on Thursday morning after Pivotal Research Group downgraded the stock to “Sell” from “Hold.” They placed an $85 price target on Disney stock, which would represent a loss of 20%-plus from here.
The research outfit singled out problems like worrisome TV audience trends and an increasing cost of capital. But perhaps most troubling for DIS stock is ESPN’s crumbling base.
As readers of my column know, I am a big fan of DIS. Disney has a lot going for it. The main driver of the company for literally the next century will be the properties it will develop with Marvel, Pixar and LucasFilm. The content these juggernauts will generate for Disney stock will satisfy millions of people around the world. So far, we haven’t had any major failures by these entities because they are each guided by cohesive creative visions.
But I agree with Pivotal — and in fact, I think ESPN is the biggest drag on DIS shares right now.
For a while, I was attributing ESPN’s struggles to the fact that unbundling and cord-cutting and ongoing fragmentation of sports programming was behind the brand’s stumbles. And I think that’s all still true. I also think the studio will figure out the best ways to offer content to the public, and the best venues and subscription methods to do so.
ESPN does have a streaming app, but the programming isn’t the best that the channel has to offer. That’s reserved for TV viewers, where ad rates are higher — which is what any investor in DIS stock wants.
ESPN had just under 100 million subscribers in 2013. However, that is now down to about 90 million, including about 620,000 lost in just October and November.
The Real Problem With ESPN
However, on reflection, I realized that ESPN has a much bigger problem — and until that problem is fixed, DIS stock will feel it. It’s a problem I’ve written about in regard to other companies.
That problem is that ESPN has decided to get political.
This is a huge mistake. As I’ve mentioned repeatedly, I don’t want any publicly traded company to get political. By that, I mean I don’t want any public statements from management or from content that supports or attacks any given political position.
The reason is that doing so instantly alienates up to 50% of the audience and consumers for those products. In the case of ESPN and Disney, it has chosen to move to the political left, and those on the right have no compunction about deserting content producers if that occurs. One of the reasons NFL football’s ratings are down, I theorize, is because of all the nonsense surrounding Colin Kaepernick’s ill-advised choice to kneel during the national anthem.
Hey, don’t listen to me. Listen to ESPN’s own public editor, Jim Brady:
“Internally, there’s a feeling among many staffers — both liberal and conservative — that the company’s perceived move leftward has had a stifling effect on discourse inside the company and has affected its public-facing products. Consumers have sensed that same leftward movement, alienating some.”
Neither Disney nor ESPN is winning over people when it awards Caitlyn Jenner its Hero of the Year Award over Gerry Callahan, an Iraq War veteran who is a double amputee and competes in CrossFit events. ESPN yanked its Celebrity Golf Charity even last summer because it was going to be held at a Donald Trump-owned golf course.
Curt Schilling dared to express a negative opinion about North Carolina’s transgender bathroom law and was fired. The annual ESPY Awards crowed about gun control and sided with Black Lives Matter. And perpetually depressing Tony Kornheiser said, “Are they (the Tea Party) like ISIS trying to establish a caliphate here.”
What Disney Stock Needs
Walt Disney CEO Bob Iger needs to step in. He needs to tell ESPN to shut up. No politics. No discussion of politics. No references to politics.
People watch sports to be entertained, to have fun, and to root root root for the home team. They don’t want to be lectured, and they certainly don’t want to see programming that insults their political ideology.
I should mention that there is one thing that might happen down the road that would also fix this entire mess: Disney could sell ESPN.
Liberty Media Group (NASDAQ:LMCA) chairman John Malone theorized that DIS might just sell the division at some point. And when Malone says something like that, I find that Malone ends up as the buyer.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
