Despite the record-breaking $517 billion worldwide performance of its new Star Wars movie, the Walt Disney Co. finds itself once again reeling on Wall Street due to the struggles of its suddenly faltering ESPN networks.
In this case, all it took was the downgrading of Disney and ESPN by BTIG Research analyst Richard Greenfield, who accused the conglomerate of making a "fundamental" mistake in overpaying for sports rights and having too much faith in the current multichannel environment.
Disney stocks cratered 4 percent Friday and another 1 percent as of mid-day trading today -- an ominous sign, given overwhelmingly positive news originating from the motion-picture division.
"Not only did Disney overpay for individual sports rights packages, they also acquired too many sports rights in an effort to prevent new competitors such as Fox Sports 1 and NBC Sports from growing stronger," Greenfield said. "As a result, we believe Disney's cable network profitability will meaningfully underperform investor expectations – with cable networks representing 44 percent of Disney's segment operating income."
Calling ESPN Disney's "most troubled business," Greenfield downgraded operating income projections for the conglomerate for the 2017 fiscal year.
Greenfield's downbeat forecast follows a steady drumbeat of bad news for ESPN. According to documents recently filed with the Security Exchange Commission by Disney, ESPN has lost about 7 million subscribers since 2013. Analysts estimate that Disney has lost around $1 billion so far due to the lost subscriber money and advertising reach.
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