Concerns Over ESPN Pull Disney Down

A drop in numbers of subscribers and higher costs for programming at ESPN its cash cow weighed on Walt Disney Co stock Tuesday, overshadowing profit for the quarter that beat expectations on Wall Street.

A close watch by investors has taken place regarding how ESPN will navigate the television shakeup as viewers shift from traditional services of pay TV while online services skyrocket.

CEO Bob Iger, while speaking to analysts, said Disney increased its customers on new digital platforms, but the new customers did not sufficiently offset losses in subscribers from basic cable packages.

Stock fell 2.4% in trading after hours.

Disney’s profit for the first quarter of 2017 beat estimates by analysts as the business was helped from success of the live action adaptation of Beauty and the Beast along with its newest theme park in China.

Overall attendance at the Shanghai Park to date will pass 10 million within days, which is faster than projected by Disney, said the CEO.

For the three-month period, adjusted per share earnings were $1.50 compared to analyst estimates of $1.41.

Revenue for the period was $13.34 billion, an increase of 2.8%, but did not reach analysts’ estimates of just over $13.45 billion.

The company’s cable division posted a drop of 3% in its operating income ending the quarter at $1.78 billion.

Attributable net income increased ending the quarter at $2.39 billion up from last year’s $2.14 billion for the same period.

EPSN suffered a loss of subscribers during the period and was also hit with an increase in programming costs, partly due to a new and more costly contract with the NBA.

Less subscribers means there is less revenue at ESPN, which has to pay for programming contracts for sports that it is locked into for a number of years.

Lower number of subscribers paying to watch sports is a huge problem for the sports network, given ESPN has a cost structure with sports rights for a number of years, said a Wall Street strategic adviser.

CEO Iger said that Disney was going through a quick adapting process caused by the changing TV marketplace and had been encouraged during the quarter by the interest from consumers in its digital services that included ESPN, like Sling TV on Dish and PlayStation Vue from Sony.

Disney is preparing the launch of its subscription streaming service on ESPN and acquired a stake of 33% in BAMTech a streaming video company in 2016 for $1 billion.

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