"Star Wars: The Force Awakens" was not just one of the most awaited films of 2015, it's also one of the top grossers earning $1.16 Billion worldwide as of Dec. 29 and very close to overtaking James Cameron's "Avatar" which earned $760.5 million domestically. The Force also gave the United States (U.S.) Box Office a boost, allowing it to cross the $11 Billion mark for the first time.
J.J. Abrams' "The Force Awakens" was able to accomplish such a feat and though it has not been released in China yet, the second biggest movie market, there is no doubt that The Force will bring in even more earnings for Disney. In spite of the positive review and outlook, however, Disney's stocks do not seem to reflect the success of one of its biggest franchises. So what's the deal?
Is There A Disturbance With The Force?
In the film, yes, there is a disturbance with The Force but, when it comes to Disney and the stock market, there is something much larger at play. Specifically, the disturbance lies with how Disney is handling all its businesses. You will have to remember that Disney isn't just all about films, animated or not. The studio also has merchandise, theme parks and cable channels. When you combine all these businesses together, Disney's stock as a whole would reflect the effects.
Yes, "Star Wars: The Force Awakens" gave Disney's stock price a boost, especially prior to the theatrical release when everyone was pretty much hyped about it and people were purchasing merchandise and tickets left and right. However, now that many have seen the film and the stock price is supposed to be stabilizing, the underlying issue that caused Disney's stock price to decline is rearing its head back up again and its name is ESPN.
What Has ESPN Got To Do With It?
The cable sports channel ESPN is mainly responsible for the stock price decline that Disney is experiencing. You already know that Disney is a huge company with investments in several areas but to give you a clearer picture, this is what Disney's revenue is comprised of: 44% Media Networks (Disney Channels, ABC, ABC family and ESPN), 31% Disney Parks and Resorts-yes, that includes the cruise line, 14% Studio Entertainment (all the Disney ones plus Marvel, Pixar, Touchstone Pictures and LucasFilm), 9% Consumer products and 2% Interactive Media. Of the 44% that media networks make up, ESPN is responsible of 28% of the stock price.
ESPN had 99 million subscribers in 2013 but went down to 95 million in 2014. By October 2015, ESPN subscribers are down to 92 million and there's really no indication that the number will stop going down. Disney's Chief Executive Officer (CEO) Bob Iger, however, is still confident that ESPN will rise again. "We have lost some subscribers, but we believe we will continue to derive growth from ESPN. It will just not be at the rate it was before," he said in an interview.
Then again, perhaps it's better for Iger to continue looking at the bright side since Disney invested $15 Billion for rights to air National Football League (NFL) games for 10 years in 2011 and another investment in 2014, this time with the National Basketball Association (NBA) with a contract of $1.4 Billion annually for nine years. Those are hefty investments for a network whose viewership continues to decline.
Is Disney's Stock Bullish Or Bearish?
Right now, Disney is neither climbing high nor declining drastically. Disney's current stock price, though lower than the middle of 2015, is still high at $107.08 on Dec. 29 and at its highest when compared to the previous four years. However, should something big alter ESPN's already shaky situation in 2016, whether favorably or unfavorably, Disney will also be affected, perhaps even greater.
