Oso planning to go pro
I caution you against making long-term proclamations based upon short-term market movements.If you truly think Disney is doomed, you should be mortgaging your house and selling everything you own to short the stock big-time. Then you'll be rich, rich, rich and you can laugh at the millions of pitiful Disney shareholders.BTW, I do not own DIS. But I will be a buyer if it drifts under 100 again, and maybe even before that.
ESPN and Disney's other media networks are the company's largest sales and profit contributor, accounting for 44% of revenues and 54% of income.Stop calling it Disney and start calling it ESPN and things will make a lot more sense.And Disney is not a short, it is dead money. ESPN growth is going to suck and drag the entire companies growth prospects down. You'll get a chance to buy it under $100 many times over the next many years. I don't bother with investments that will return 0% to -10%. I look for things that are going up.
I notice that on this subject, just as with every other subject that is brought up, that you ONLY deal with absolutes. If something is happening today, that means it will always be that way.That is why you say that a lock for the Dem nomination has no chance - because you read an article that Bernie gained ground one week. Which, to your way of thinking, means he will continue to gain every week until he crushes HRC.There is only one absolute. Things change! That is something you should have been taught at a very young age.
At least a few of the analysts today properly said they can't go OTT for quite awhile, which is what I've been saying for years. They would lose their ass. They are stuck between a rock and a hard place on that.Iger was on Bloomberg today, and also correctly stated that ESPN is still immensely profitable and will be just fine for many years to come.
Dougie Kass is a hedge fund manager and short seller. I posted him above. Here is his latest musing (just post a little while ago.)All of this gets me to my analysis of Walt Disney Co. (DIS). I outlined my bearish case for Disney back on Nov. 27, shorting the stock at $116.25 a share at the time.Well, Disney closed $10 a share below that yesterday. I remain short on the stock, and have even added to this position over the last several weeks.Lo and behold, well-respected BTIG analyst Richard Greenfield dropped the hammer on Disney last week. He cited a point I previously made -- that the publicity surrounding the new Star Wars movie is distracting investors from the drain of subscribers at ESPN.Disney CEO Robert Iger slammed Greenfield's report yesterday when he appeared on Bloomberg TV for a lengthy interview. Those with Bloomberg terminals can watch the entire talk, while others can check out these excerpts:• Iger attacking BTIG position and ESPN's risk from fixed sports-rights deals. http://bit.ly/bbiger12-21-15• The CEO talking about ESPN and cable TV's maturity, and on direct-to-consumer opportunities. http://bit.ly/ESPNMature• Other clips from Iger's appearance. http://www.bloomberg.com/search?query=iger&startTime=-1dAs for Greenfield, he defended his ESPN views yesterday on CNBC. His comments contrast with Iger's about ESPN's readiness to go direct to consumer, which the BTIG analyst sees as challenging. http://bit.ly/CNBCDisney12-21-15Greenfield also expanded on his thoughts in a missive (http://www.btigresearch.com/2015/12/21/watch-iger-vs-greenfield-is-espn-direct-to-consumer-viable/) on BTIG's Web site entitled Iger vs. Greenfield (free registration required). And Andrew Ross Sorkin wrote about Greenfield's views and Disney's challenges in a well-documented New York Times column this morning. http://www.nytimes.com/2015/12/22/business/dealbook/at-disney-a-dark-force-looms-large-unbundling.html?ref=business&_r=0%20-Of course, shorting Disney or any other stock isn't for everyone. The point of my analysis wasn't just to recommend a DIS short, but to provide reasons why those who are long on the stock might consider paring back or even eliminating their stakes.
OVER THE TOP: Bloomberg TV’s David Westin asked, "How important is direct-to-consumer for ESPN’s future?” Iger said, “We believe in the multichannel model, and we believe that it’s not only not going away, but the predictions about its demise were, we think, overstated. That said, we talked about growth being limited in many respects, or more limited than before. We think at some point, if that business model were to fall apart, there are opportunities to go direct-to-consumer.” Iger: "Long-term, ESPN will be just fine, but we refuse to have our head in the sand or be Pollyannaish about what we’re seeing in the marketplace and others may be seeing things differently. We believe there’s disruption going on and there’s more disruption ahead and we’re spending a fair amount of time making sure we’re well positioned in that market. Obviously ESPN is we believe something of great value even in this disrupted world.”
Star Wars came out December 18 (sneak peek December 17). It is now the fastest movie to $1 billion in revenues (9 days).December 16 (day before sneak peek) to now Disney stocks crushed for a loss of 6% (was 8% until yesterday's bounce back).Their is information is the stock price action. And the fact that Disney's stock is going straight down while lines are around the block for Star Wars speaks volumes.Cutting to the chase, all the comments here about the Star Wars property are proving correct. We now have hard numbers to confirm it. But that still cannot offset the worry about Disney's death star - ESPN. The worry is ESPN is seeing massive cord cutting is so palpable that not even the greatest movie release in human history can save Disney's stock.This is a long thread so here is the Cliff Notes version ...First ESPN accounts for 44% of revenues and 54% of earnings at Disney. Disney might as well change its ticker symbol from DIS to ESPN.Two years ago ESPN had 99 million subscribers. Last update this fall from Disney was ESPN was down to 92 million. This is a collapse. When ESPN pays billions and billions for broadcast rights for everything from Monday Night Football to ACC basketball, this kind of cord cutting is so worrisome for Wall Street that even Star Wars cannot save Disney's stock.Anticipating Chicos response ... Disney CEO Bob Iger will correctly say ESPN is still profitable. Like the window washer that fell from the 10th floor and said "so far so good" as he crossed the third floor, Wall Street's concern is Disney's 92 million subscribers are 85 million in a year and 73 million in two years and ESPN's fixed costs (broadcast rights) cannot be cut to fall with its declining subscribers (revenues) so the fear is losses are coming.Want Disney's stock to go back to $125 to $130? Convince Wall Street cord-cutting will end at 91 million, or ESPN can just jack it fees 15% to 20% and cover the cord-cutters. That argument cannot be made so the stock suffers.Restated simply, the sports broadcasting bubble has popped. What follows next is the mess.
Just got a letter from DirecTV about my costs going up. I think I'll have to call Time-Warner to get an estimate. I don't want to go away from DirecTV, but my satellite/Internet is already over $200 per month and the only real extras I have are the DTV sports package, HBO, Cinemax, and Showtime. I'd much rather stick with DirecTV than go to TWC (who is generally terrible in my estimation) but man...$200/month feels really steep. Especially when my Netflix/Amazon Prime combination comes in at under $20 per month. Add Hulu and what's the point?Honestly, the only real attraction left is live sports. That might be the next big Internet opportunity. If some company could become the Netflix of live sports, streaming ESPN, FS1, NBCSN, and all the other major sports networks, that would be a goldmine. I have to imagine most sports fans would pay $30/month for that at the least. Do that, then include an archive feature for old games and events and you'd have an easy billion-dollar business. Someone must be working on that by now.
Maybe you do know a lot about the disaster that is Disney's future better than, say, the people at Morningstar, who rate DIS a 4-star buy and give it a $134 fair value. I guess we'll see soon enough, although I'm more willing to wait a few months, or even years, before I make definitive declarations. Then again, I am an investor and not a trader, so I don't mind being patient.BTW, I do not own a single share of Disney stock. It is on my watch list, however, and I very well could initiate a position if it moves back under 100.
"Despite the mounting worries about ESPN, though, most investors see the diversity of Disney's business units as a big plus. Analysts, on average, think Disney could be worth $119 a share in 18 months, which would be 13% upside from the current price"
Conceptually here is the problem (don't hold me to the exact numbers but I think they are close).ESPN has 92 million subscribers on Cable and Sat. They pay $6.65/month just for ESPN (plus ESPN2, ESPNnews and so on). NOPE...incorrect number and it continues to go up yearly. For obvious reasons I cannot state what the number is, but that number is wrong and low. The majority of cable subscribers never watch ESPN. But the minority that do are so passionate about live sports that they demand it be carried on basic cable so that means everyone pays for it (otherwise someone else will, a competing cable or Sat carrier, and they will lose all those subscribers immediately). Partially true, but it isn't the minority demanding it on basic cable, it is the Walt Disney company. Just as NewsCorp demands Fox be on basic cable, and AMC demands it, and Discover demands it, etc, etc. And this is just ESPN, now think of TWC or Comcast carrying local baseball games. Maybe 10% of the subscribers want that yet 100% pay for it. More like 40% of the subscribers and 85% pay for it.What I'm getting at is if someone made a Netflix for live sports with all the channels, it will have a small minority of very loyal subscribers (say 15 to 20 million) and to make money given the broadcaster rights, it would probably cost over $100/month. Yes, some have looked at this...some on this very board have been very very very very involved in this very idea...and with lots of crazy smart people concluded in today's day and age it cannot be done. Though your $100 is too high, nevertheless it is a tidy sum. TV is a subsidized game, that's how great content is created. Much like the drug industry. You want great movies, series, etc, well most don't succeed and you need a few to hit, plus you need predictable revenue streams.Sports right fees are extremely bloated because the business model assumed that all of America would pay for it via their cable bill because a passionate few demand live sports channels that carriers had to offer and they could charge a mint for it (ESPN is far and away the most expense channel we all pay for). Cord-cutting is blowing up this model (the sports bubble is popping). First the TV carriers get crushed because they have the fixed cost of paying agreed upon broadcast rights. Later it will be the sports leagues (or conferences) as they find their broadcast rights will attach less money. TBD. You are partly correct, but also wrong just the same. Sports rights exploded for many reasons, including RATINGS and advertising. It is DVR proof, and that means you get to charge a pretty penny. The other parts you talk about, sure there is some truth to this.However, much like did with DVD sales, taxis, etc, you put things in the buried column years before you need to. All credible analysis show Pay TV model is here for a LONG time to come. It will erode some with subscribers, but revenues will be solid. Projections are that still 85% plus of the US will be pay TV into the 2020's. Furthermore, who do you think is getting into the cord cutting business? Verizon. Check. AT&T \ DIRECTV. Check. Dish. Check. Comcast. Check. So they're still going to get theirs, just at different margins, but also at different expenses. Let me give you an example. Dish and DIRECTV spend about $900 to acquire a customer. That is why they need two year contracts, because the SAC cost is so high for the marketing, equipment, installer, etc. They are now selling OTT products with a SAC of about $150. Now, are they getting the revenues for OTT or the two year contract? Nope, but they are also clearing money in the first few months that they weren't clearing on other subs until much later. It's a trade they can live with, to a certain point. For the customer, there is good and bad. They don't get as quality a service, have to rely on their own connections and data plans, limited to 2 concurrent streams or less, etc, etc.As I noted before the Big East is in a good place only because they have 9 years left on their deal. This is 2024 problem for them.
First, Disney's stock price has not gone "straight down." It traded between 95 and 105 from Aug. 20 to Oct. 8, almost for two months solid. It moved up to 120 on Nov. 20 -- which I guess could have been termed "straight up" -- and then has drifted steadily downward since. Its loss has hardly been a catastrophe; DIS hasn't even retreated to where it was 6 weeks ago. It has experienced a couple of notable single-day falls, which always accentuate the negative.The chart below is the last five years of Disney's stock. The August 2015 announcement of subscribers losses is very apparent. It change the trend. Restated, the single biggest thing to happened to Disney stock in the last five years was the ESPN announcement that it is losing subscribers. It single-handily ended the $30 to $120 uptrend. So yes a stock that was in a relentless never look back uptrend for five years. Nothing stopped Disney. Then ESPN announces larger than expected cord-cutting and the roof fell in. So now it is stumbling 8% on the release of the highest grossing film ever. In my book, that is getting "crushed." (As I noted before, I don't think it necessarily goes down. Five years of uptrend is over. I think the stock is $110 in five years, hence my comment on a previous page that it is "dead money.")Second, going from 99 million subscribers to 92 million subscribers over a two-year span -- a reduction of 7% -- is that really a "collapse"?If it stops at 92 no it is not a big deal. The fear is this is the early innings of cord-cutting. See the chart above, that is what it says.I mentioned that I work on Wall Street (although in Chicago, not NYC). I can tell you that the largest money managers in the world pay absolutely no attention to these calls. They do not view them as credible. The reason is this is their call on every stock! Including Disney in August right before the ESPN announcement.I don't either.
Now Fox is starting to pull back from Netflix as are others. More price increases across the board.
The other aspect about DIS stock that few seem to take into consideration. The dividend. It is an income producing stock. Great companies can afford to pay dividends. It is not a high yield dividend like AT&T, but a dividend nonetheless in the neighborhood of an Apple and others. This past year, two dividends were paid out for Disney stock. This year a 7.6% increase on the dividend from the previous year. For a long time DIS was doing one dividend a year, now its twice per year. That's real money.