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Author Topic: Is ESPN In Trouble (cord-cutter)  (Read 21716 times)

Tugg Speedman

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Is ESPN In Trouble (cord-cutter)
« on: August 05, 2015, 07:50:02 AM »
Disney's stock is going to get crushed today (predicted to open down 8%) in the wake of its earnings report last night.  While the overall report was good, the trouble was they came up light on revenues.

But what was really troubling, and was the focal point of the investor conference call last night, was subscriber losses at ESPN.  They are losing subscribers and this has investors greatly concerned.  Bob Iger did his best to dissuade investors but they are not buying it.

The fear is linear TV watching (what we do now) is becoming a thing of the past.  Streaming and paying for what you want, and not for a bundle of channels you do not want, is a thing of the past.

If so, ESPN is in deep trouble.  They bought the rights to sports properties at top dollar on the assumption this would NOT happen.

Keep this in mind the next time someone bashes Fox Sports.  They are all offering yellow taxis (cable bundles) in an Uber world (pick and choose streaming).


------------------------------------------------------

The Wall Street Journal
Disney Defends ESPN in an Age of Cable Cord-Cutting
Media company’s bottom line was helped by latest ‘Avengers’ movie, ‘Frozen’ merchandise
By Ben Fritz Updated Aug. 4, 2015 7:10 p.m. ET

http://www.wsj.com/articles/disney-profits-boosted-by-avengers-frozen-1438720227

A conference call to discuss Walt Disney Co. ’s financial results Tuesday became a forceful defense of ESPN in an age of cable cord-cutting, reflecting Wall Street’s concerns about the future of one of the media world’s most lucrative brands.

While granting that sports powerhouse ESPN has experienced “some subscriber losses” that he declined to specify, Disney Chief Executive Robert Iger repeatedly said the channel will remain in a healthy position thanks to its long-term rights to the NBA, college football playoffs and other programming, as well as the value to advertisers of its programming that is largely watched live.

The combination, Mr. Iger said in his opening remarks, “adds up to a very strong hand and gives us enormous confidence in ESPN’s future no matter how technology transforms the media business.”

Still, as consumers shift to less costly “skinny packages” or abandon cable altogether, Disney is feeling the impact. The company previously said its cable business, primarily driven by ESPN, would achieve “high single digit” operating income growth on a compound basis between fiscal 2013 and 2016.

But partly because of lower subscriber levels, that figure will end up in the “mid-single digits,” said Chief Financial Officer Christine McCarthy. The strong U.S. dollar also had an impact, Ms. McCarthy added.

Mr. Iger said he doesn’t foresee “dramatic declines” in basic cable subscriptions over the next five years that would necessitate launching an “over-the-top” product that allows consumers to purchase ESPN through the Internet without a package of other channels.

However, he did say that new deals with cable and satellite companies give Disney the option to make such a move “should we conclude that becomes the more attractive opportunity for us.”

Disney shares closed up 1% at $121.69 before results were released Tuesday, but fell nearly 6% in after-hours trading.

Wall Street’s concerns about ESPN’s future come as the cable network has been dropping big name talent like Bill Simmons and Keith Olbermann in an effort to trim costs as it loses subscribers. Advertising revenue at the sports network was down 3% in the quarter ended June 27, which Disney attributed to a difficult comparison with last year, when the men’s FIFA World Cup aired.

Cable has accounted for 46% of Disney’s operating income so far this fiscal year, making the stakes in ESPN’s evolution quite high. The company combines ESPN’s results with those of other, smaller networks such as Disney Channel and ABC Family.

Overall cable-networks revenue increased 5% to $4.14 billion in the three months ended June 27, Disney’s third financial quarter; operating income was up 7% to $2.1 billion. Contractual rate increases at Disney Channel and ABC Family, as well as sales of their programs to subscription video on-demand services, helped.

Total revenue for Disney rose 5% in the quarter to $13.1 billion and net income was up 11% to $2.5 billion.

The company’s movie studio remained a particularly strong performer, with revenue up 13% to $2 billion and operating income up 15% to $472 million. Impressive box office returns for “Avengers: Age of Ultron,” “Inside Out” and “Cinderella” more than made up for the fizzle of “Tomorrowland” and the studio continued to benefit from its share of “Frozen” merchandise sales.

The only weak spot came from Disney’s interactive group, where revenue was down 22% to $208 million and operating income fell from $29 million a year ago to break-even.

Sales of the company’s flagship “Infinity” videogame and interactive toys are down, Disney said. New “Star Wars”-inspired Infinity products will launch this fall, though the results may be obscured as the company will combine its interactive and consumer products units in the new fiscal year starting in late September.

Though Disney doesn't provide specific guidance, Ms. McCarthy did provide a warning to investors about fiscal 2016. Because the company wasn't able to purchase currency hedges at rates as attractive as it did a year ago, the strong U.S. dollar will lower operating income next fiscal year by about $500 million, she said.

Next fiscal year will be a critical one for the company, as it launches its first “Star Wars” movie in December and opens its theme park in Shanghai next spring.
« Last Edit: August 05, 2015, 07:55:46 AM by Heisenberg »

tower912

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #1 on: August 05, 2015, 07:57:31 AM »
Old news.   Been discussed frequently here.   All of that cost-cutting (Cowherd, Simmons, Olbermann) took place for a reason. 
Real Warriors don't whine.

Tugg Speedman

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #2 on: August 05, 2015, 08:02:21 AM »
Old news.   Been discussed frequently here.   All of that cost-cutting (Cowherd, Simmons, Olbermann) took place for a reason.

Since you knew this before yesterday's announcement, congrats on the money you made on your Disney short. 

Yes the concept is old news ... what is new news is the trend away from bundles appears to be accelerating faster than anyone thought.
« Last Edit: August 05, 2015, 08:04:06 AM by Heisenberg »

ChicosBailBonds

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #3 on: August 05, 2015, 09:45:34 AM »
Old news.   Been discussed frequently here.   All of that cost-cutting (Cowherd, Simmons, Olbermann) took place for a reason.

Cowherd was not a cost cutting move, he was offered $5M per year, more than he was currently being paid at ESPN.

Simmons was on his way out for the last 3 years.  I'd add that Simmons needs a big brand to make his schtick go from a platform perspective.  He landed at HBO, where he will have even less to worry about because they don't care about ratings per se, and all their other content will keep his stuff going.

Olbermann is a jackhole that has been fired EVERYWHERE.
« Last Edit: August 05, 2015, 10:08:08 AM by ChicosBailBonds »

ChicosBailBonds

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #4 on: August 05, 2015, 09:48:09 AM »
As a Disney stockholder and former Disney employee  (Mouseschwitz is what we used to call it), I'm not worried one iota.

They beat earnings, they were short on revenue.  Sure the stock will get hit, but just wait until Star Wars next quarter and some of the pipeline content.

Put another way, I'm buying Disney today. 

Tugg Speedman

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #5 on: August 05, 2015, 03:37:02 PM »
Disney was down more than 9% today to $110.53 ... it's worst day since the height of the financial crisis in 2008.  Today was more than just a jiggle.

And it was more than Disney, CBS, Time Warner, Comcast  and Fox were all hammered today.

And on the other side, Netflix had another huge upside day to another all-time high.  Its market cap is now $52 billion

Analyst are saying the ESPN results show the cord cutting is accelerating faster than anyone thought.  One analyst called it a "Netflix world."

Chicos will write 5 to 10 paragraphs about why this is not the case.  And he will be 100.00% correct.

The problem is the "market makes its own reality."  If investors decided it is a netflix world, and destroy the stocks of traditional TV companies and send Netflix's stock to the moon, guess what, it will be a Netflix world!!!

Why put this here?  Because the biggest loser is live sports.  ESPN, Fox Sports and the rest stunningly overpaid for their rights (including Fox for the BE).  They are going to lose tons and tons of money.  Sports franchise are going to feel it when their current deals are over. 

ChicosBailBonds

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #6 on: August 05, 2015, 08:55:52 PM »
I bought some today when it was down about $10.00.   May buy some more tomorrow.

I love Bob Iger, but thought he was a bit disingenious with his statement that they could go OTT today if they wanted to.  From a technical perspective, he's correct.  From a contractual perspective, not so fast.  More importantly, he knows that if he did the amount of money he stands to lose is huge.  That's why they are sticking with the bundle despite a lot of people screaming they shouldn't, because of those people simply don't understand the mechanics or the risk involved.

Some day, yes, but not for awhile.

Tugg Speedman

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #7 on: August 05, 2015, 10:31:51 PM »
I bought some today when it was down about $10.00.   May buy some more tomorrow.

I love Bob Iger, but thought he was a bit disingenious with his statement that they could go OTT today if they wanted to.  From a technical perspective, he's correct.  From a contractual perspective, not so fast.  More importantly, he knows that if he did the amount of money he stands to lose is huge.  That's why they are sticking with the bundle despite a lot of people screaming they shouldn't, because of those people simply don't understand the mechanics or the risk involved.

Some day, yes, but not for awhile.

100% correct

But isn't the market saying that "someday" is actually a lot sooner than you think?


chapman

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #8 on: August 06, 2015, 07:04:33 AM »
100% correct

But isn't the market saying that "someday" is actually a lot sooner than you think?

They are taking that bet.  Investors are paying 277x earnings at $123.71.  Some forecasts calling for $160+ (355x).  Either the E rises sharply, or the P plunges in the other direction. 

ChicosBailBonds

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #9 on: August 06, 2015, 08:03:27 AM »
100% correct

But isn't the market saying that "someday" is actually a lot sooner than you think?

The market is often irrational, too.  There was a great article about the over panic on Disney stock last night....I'll try to find it. I think the key line was Iger saying not only is the bundle NOT going away, it will grow.

I think he's right.   People just haven't figured out what that means.   In my view, it means things like AT&T DIRECTV where ESPN mobile bundles will be created.  Dish is trying to buy T-Mobile, you'll see wireless video bundles there.  etc, etc

I've used a phrase here for many years about trading dollars for dimes.  I've noticed it is starting to be used a lot in these articles with a twist, trading analog dollars for digital dimes.  It's not entirely accurate since everything on satellite, cable, telco has been digital for some time (for satellite since day 1), but that's the situation.  For so many of these channels that is the problem they have.  A premium like HBO can do it because they are already an a la carte channel.  For ESPN or Discovery or fill in the blank "basic" channel, the decision is enormously more complex because they make their because of the bundle, not despite it.

ChicosBailBonds

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ChicosBailBonds

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #11 on: August 16, 2015, 01:30:59 AM »
Star Wars Land...


this is why I bought more Disney stock last week.  With Marvel, Lucas, etc....Disney will be doing just fine.


http://mashable.com/2015/08/15/star-wars-the-force-awakens-disney-d23/?utm_cid=mash-com-fb-main-link

Tugg Speedman

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #12 on: August 16, 2015, 09:08:37 AM »
Star Wars Land...


this is why I bought more Disney stock last week.  With Marvel, Lucas, etc....Disney will be doing just fine.


http://mashable.com/2015/08/15/star-wars-the-force-awakens-disney-d23/?utm_cid=mash-com-fb-main-link

The stock has not recovered from its ESPN cord-cutting dive.

As noted above, on August 5 Disney closed down 9% at $110.53, its worst day since the financial crisis.  On Friday (Aug 14) it closed at $107.

Yes Disney may recover for non cord-cutting reasons, one of which you note.  But, make no mistake, the market has decided that cord-cutting is accerlating faster than anyone imagined.  The single biggest loser due to cord-cutting will be ESPN (and its owner Disney), quickly followed by sports properties (NFL, NBA, ACC etc.) that depend in sports networks to grotesquely overpay for their product.
« Last Edit: August 16, 2015, 11:44:23 AM by Heisenberg »

ChicosBailBonds

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #13 on: August 16, 2015, 05:06:40 PM »
The stock has not recovered from its ESPN cord-cutting dive.

As noted above, on August 5 Disney closed down 9% at $110.53, its worst day since the financial crisis.  On Friday (Aug 14) it closed at $107.

Yes Disney may recover for non cord-cutting reasons, one of which you note.  But, make no mistake, the market has decided that cord-cutting is accerlating faster than anyone imagined.  The single biggest loser due to cord-cutting will be ESPN (and its owner Disney), quickly followed by sports properties (NFL, NBA, ACC etc.) that depend in sports networks to grotesquely overpay for their product.

We shall see.  The Horowitz study that was released on Thursday was interesting and clearly many people aren't paying attention to it, and instead going through irrational behavior again.

Tugg Speedman

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #14 on: August 20, 2015, 11:38:46 AM »
Disney's stockis  getting smashed again today.  Down 6% to $100  Recall on August 4 it was trading $122, then the next day Disney said cord-cutting is much faster than anyone ever thought, which devastates ESPN.  In three weeks the company has lost 20% of its value.

Remember, the market makes it's own reality.  You can give me tons of reasons why this is wrong, and you will be 100% correct.  But the market has decided that bundles and the current business model is done.  We are just waiting for industry execs to sign the death certificate.  In the meantime the market is taking money away from "bundle sellers" (Disney, Time Warner, Fox, Comcast, etc) them and giving it to streaming serves (like HBO, Netflix and Google because it owns YouTube.)

Again the biggest loser is ESPN which means the live sports will be killed.  No more way overpaying for their broadcast rights.  It will take a few years as the current contracts have to expire, but this could be the busting of the live sports bubble.


------------------

Bernstein: Investors Need to Completely Rethink the Way They Value Media Companies
In a new valuation, Disney and Time Warner were the biggest losers, while Viacom had been downgraded earlier

http://www.bloomberg.com/news/articles/2015-08-20/bernstein-investors-need-to-completely-rethink-the-way-they-value-media-companies

Media stocks have been slammed since the start of the month, triggered by comments out of Disney suggesting an accelerated decline in pay-TV subscribers. Since those comments, Disney is down more than 15 percent, dragging others with it.

Now Sanford C. Bernstein analyst Todd Juenger and his team have a big message for the media industry: Everything has changed. In a note sent out this morning, Juenger not only downgrades Disney and Time Warner; he also says analysts need to change the way they think about valuing this industry all together, as both of the industry's major revenue streams—pay subscribers and advertisers—are in jeopardy.

Where the stocks/sector have traded historically is irrelevant. The world has changed too much. Where the stocks are currently trading may or may not be appropriate – but why?… We have come to believe the affiliate fee revenue stream deserves a higher risk premium than it did before. The question of whether pay-tv sub declines are accelerating is only a question of 'over what time frame?'

It gets worse.

We believe the U.S. television industry is entering a period of prolonged structural decline, caused by a migration of viewers from ad-supported platforms to non-ad-supported, or less-ad-supported platforms. We favor companies that have the least exposure to U.S. advertising, the most exposure to sports, and advantaged positions internationally. But we fear the entire sector will struggle to work until the content owners take concerted action to reclaim on-demand viewing from the SVOD services and use it to protect affiliate fees.

In this new valuation, Disney and Time Warner were the biggest losers, although Viacom had already been downgraded. Until recently, Disney had been one of the top performers in the Dow Jones Industrial Average. Fox was one of Bernstein's reluctant bright spots, as it has doubts the stock will continue to perform well in quarters to come but "cannot force out model or 12-month target price any lower." Time Warner was noted as a close call, but the analysts believe the company's guidance for 2018 is at risk. Disney was also downgraded despite positive projects in the pipeline, such as the college football championship and an expansion of the Star Wars franchise. Lastly, they called Viacom a "clear structural short." Ouch.

Media stocks are getting slammed today: Disney is off over 4.5 percent. Viacom is off over 5 percent. Time Warner is down over 3.5 percent.
« Last Edit: August 20, 2015, 11:41:45 AM by Heisenberg »

GooooMarquette

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #15 on: August 20, 2015, 12:54:12 PM »
Disney's stockis  getting smashed again today.  Down 6% to $100  Recall on August 4 it was trading $122, then the next day Disney said cord-cutting is much faster than anyone ever thought, which devastates ESPN.  In three weeks the company has lost 20% of its value.

Remember, the market makes it's own reality.  You can give me tons of reasons why this is wrong, and you will be 100% correct.  But the market has decided that bundles and the current business model is done.  We are just waiting for industry execs to sign the death certificate.  In the meantime the market is taking money away from "bundle sellers" (Disney, Time Warner, Fox, Comcast, etc) them and giving it to streaming serves (like HBO, Netflix and Google because it owns YouTube.)

Again the biggest loser is ESPN which means the live sports will be killed.  No more way overpaying for their broadcast rights.  It will take a few years as the current contracts have to expire, but this could be the busting of the live sports bubble.



I agree that the paradigm is changing...but don't think ESPN will be the biggest loser.  Even though it has traditionally made its money as part of a bundled package, ESPN has a big enough name that it should be able to get subscribers if/when all viewing becomes a la carte.  I think the real losers will be the smaller networks (Hallmark, Oxygen, Comedy Central, FoxSportsOne), which seem to do OK as "add-on" channels as part of a bundle, but which may not have a large enough following to compete independently.

Tugg Speedman

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #16 on: August 20, 2015, 01:29:44 PM »
I agree that the paradigm is changing...but don't think ESPN will be the biggest loser.  Even though it has traditionally made its money as part of a bundled package, ESPN has a big enough name that it should be able to get subscribers if/when all viewing becomes a la carte.  I think the real losers will be the smaller networks (Hallmark, Oxygen, Comedy Central, FoxSportsOne), which seem to do OK as "add-on" channels as part of a bundle, but which may not have a large enough following to compete independently.

It's about what ESPN charges.  Every cable bill in the US (which includes you and me) pays $7/month for ESPN/ESPN2 (more if you get U, news, classic, etc).  Most other stations charge less than $1/month (like Fox Sports).

Maybe 20% of all TVs actually watch ESPN yet 100% pay for it. 

So yes millions will sign up for ESPN if they go streaming.  But unless they are willing to pay $40/$50 month, ESPN will never make up the lost revenue it makes now with the bundle, as it gets hundreds of millions a month from cable subscribers that do not use the product.   Wall Street fears that only 20% to 30% of current bundles subscribers will pay ESPN $7 to $10 month (what they pay now as part of the bundle).  That means ESPN loses 80% of its revenue base!  This flows-through to sports franchises as they will get many billions LESS in broadcasting rights once their current deals expire.  So yes their will always be a ESPN.  But it's going to have to drastically cut its costs.

The bull story is Wall Street has it wrong and the bundle is sticking around a lot longer.  That only works if most subscribers think their $100/month cable bill is a good deal.  They don't.

This is why Disney's stock is getting destroyed (down 20% in three weeks since the announcement of subscriber losses at ESPN).  Wall Street gets it, the old model is dead (see  the post above) and ESPN is way too high a cost producer to survive in its current form in the new streaming world.  They paid too much to the NFL, MLB, NBA, ACC etc.  When these contracts expire in the new streaming world, they are all getting billions less and the high cost of running a sports league (player salaries) will crush sports franchises.

« Last Edit: August 20, 2015, 01:39:13 PM by Heisenberg »

Litehouse

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #17 on: August 20, 2015, 02:37:23 PM »
I think FS1 could do well in small bundles as a low cost alternative to ESPN.  You can still get your daily sports highlight/news show and a variety of live events at a fraction of what you'd have to pay for ESPN.  That might be good enough for a lot of people.

jficke13

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #18 on: August 20, 2015, 04:41:06 PM »
Do people really watch sports highlight shows anymore? If I want highlights I get it streamed from some website. Oftentimes straight from the league (MLB is pretty good about providing highlights).

Isn't FS1 competing with ESPN for Sportscenter viewers two starving castaways fighting for the last coconut?

GooooMarquette

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #19 on: August 20, 2015, 06:55:24 PM »
Do people really watch sports highlight shows anymore? If I want highlights I get it streamed from some website. Oftentimes straight from the league (MLB is pretty good about providing highlights).

Isn't FS1 competing with ESPN for Sportscenter viewers two starving castaways fighting for the last coconut?

That's what I was thinking.  I haven't watched Sportscenter in years, and I have no idea what the FS1 alternative is even called.  I always hated having to wait through highlights of sports or teams I didn't care about just to see the things I wanted to see. 

ChicosBailBonds

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #20 on: August 20, 2015, 09:18:04 PM »
Buy buy buy

Dr. Blackheart

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #21 on: August 20, 2015, 09:43:47 PM »
Buy buy buy

You lost $10 bucks a share when you bought Disney a week ago.  Meanwhile, AT&T going sideways down.  Sell, sell, sell. I will listen to Heise since he built The Al.

http://www.marketwatch.com/investing/stock/t

ChicosBailBonds

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #22 on: August 20, 2015, 11:17:09 PM »
You lost $10 bucks a share when you bought Disney a week ago.  Meanwhile, AT&T going sideways down.  Sell, sell, sell. I will listen to Heise since he built The Al.

http://www.marketwatch.com/investing/stock/t

You're not factoring in the 6% yield on AT&T stock for the dividend.  I'll take it.

Disney, I'll keep buying on the way down.   I own plenty from when it was below $30 and no problem buying it at $100.  I'm more worried about the bigger picture with the market overall, but a company like Disney I'm in for the long run.

Benny B

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #23 on: August 21, 2015, 12:22:13 AM »
DIS is overvalued.  Motley Fool has been selling its "four secret stocks to buy" report - which includes DIS - for a couple years now.  A lot of people buying the dream... but it's no more rational than people who buy lottery tickets to get rich.

The problem is, no one can come out and say it because Disney is still a corporate juggernaut and has the revenues to show for it.  The real issue is that they have too many eggs in the media/entertainment sector, which is going through a major evolution in consumer demand right now... if the cord-cutting fad becomes fashion, the mouse is in serious trouble.
Wow, I'm very concerned for Benny.  Being able to mimic Myron Medcalf's writing so closely implies an oncoming case of dementia.

ChicosBailBonds

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Re: Is ESPN In Trouble (cord-cutter)
« Reply #24 on: August 21, 2015, 01:33:34 AM »
DIS is overvalued.  Motley Fool has been selling its "four secret stocks to buy" report - which includes DIS - for a couple years now.  A lot of people buying the dream... but it's no more rational than people who buy lottery tickets to get rich.

The problem is, no one can come out and say it because Disney is still a corporate juggernaut and has the revenues to show for it.  The real issue is that they have too many eggs in the media/entertainment sector, which is going through a major evolution in consumer demand right now... if the cord-cutting fad becomes fashion, the mouse is in serious trouble.

I just looked at my Disney stuff.  All time, I'm up 212.67% on what I paid for it.  I'm feeling pretty good about it.  I have a few stinkers, a few winners.