CEO Robert Iger and Walt Disney Co (NYSE:DIS) need to make some decisions. With earnings about to be released for the second quarter, most people expect ESPN to continue to drag on Disney stock. ESPN is a real bugaboo now for Disney stock, and to me, there are really only two possible fixes.
The first choice to help Disney stock on this matter is to bring in a turnaround expert. The problems with ESPN are not easily wiped away, although some are more easily taken care of than others.
ESPN has to stop talking politics to stop putting that drag on Disney stock. Americans do not like mixing anything with their sports, other than alcohol and chicken wings.
Any time politics get into media, at least one half of the country gets alienated. In ESPN’s case, pandering to left-wing politics is clearly costing viewers, and harming Disney stock.
According to a study by YouGov, the impression of ESPN among Republicans has cratered since 2013, with the firing of Curt Schilling triggering a massive decline. Even the ESPN ombudsman agreed. The Colin Kaepernick drama literally turns people off football.
Sports is one of the last few merit-based organizations left in America. Football teams are scattered all over the nation, and the nation does not consist of just the coasts. Most of the rest of the country is Conservative. People don’t want to see football players kneel for the national anthem and talk about how they are being mistreated.
That’s one reason for subscription declines, and that may actually be more a symptom that the actual virus. That virus is cost.
ESPN has spent billions to secure programming rights. Those costs have been passed on to consumers, to the point where ESPN is the most expensive subscription cable programming in the country, at $6.61 per month. Some cable operators are using retention incentives to hold onto consumers.
ESPN needs someone with vision, like the guy that McDonald’s Corporation (NYSE:MCD) promoted internally and turned the chain around in stellar fashion. That’s what I mean by “vision.” He didn’t just make cosmetic changes. He re-branded and re-positioned one of the world’s most famous brands. Peter Uberroth, perhaps?
But if DIS stock can’t sell ESPN to customers, then it has to sell it to someone else. As I wrote recently, I think the natural buyer is John Malone and Liberty Media. He practically invented cable TV. He understand content. He is one of the few people with the clout to renegotiate expensive sports programming deals.
The rest of DIS is in good shape. Not only are theme parks doing incredibly well, but the recent news that Disney would be increasing its investment in immersive experiences is going to pay off big time.
As my colleagues in the immersive entertainment field say, “People want it. They just don’t know they want it.” People coming out of the “Blade Runner 2049” experience at Comic-Con weren’t talking about the VR experience, they were talking all about the character interactions within the immersive experience.
While none of the big film division franchises did much in Q2 — Marvel only had Guardians of the Galaxy 2 while LucasFilm and Pixar had nothing — there is nothing but decades of quality content coming from these going forward. The Last Jedi is coming up later this year. Marvel’s TV offerings are expanding. Spider-Man: Homecoming did great business and will show up in Q3 results, and the next “Thor” film should do well too. Three more films, including the next “Avengers,” get released next year.
DIS stock is likely in for a bumpy ride, although most investors are probably expecting a weak quarter. I think DIS stock is a great company, and if you have a very long time horizon, you can buy in anytime.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own 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.