Disney, which through Tuesday had been the top-performing stock in the Dow Jones Industrial Average this year with a record of stellar sales and profit, surprised investors by posting lower-than-estimated quarterly revenue and cutting its forecast for cable-television profit.
Disney’s shares slumped as much as 10 percent — the most since August 2011 — after the results, while Fox and CBS Corp., which both report earnings after the close, dropped more than 5 percent. Time Warner and Scripps Networks Interactive Inc., the owner of Food Network and HGTV, also fell even though they beat second-quarter earnings predictions. Overall, the Bloomberg U.S. Media Index had its biggest intraday decline in almost four years.
‘Investors are definitely reading across the Disney earnings and extrapolating it to the broader media sector,’ said Paul Sweeney, an analyst at Bloomberg Intelligence.
Disney is facing two challenges of it own: fewer subscribers at cable networks such as ESPN, its biggest business, and foreign exchange losses from the strong dollar that are hurting both cable TV and international theme parks.
But the concerns over ESPN’s growth and comments on affiliate revenue from pay-TV providers, which Disney now expects to fall short of previous forecasts, may be a gauge for other media companies.
Both Time Warner and Fox are doubling down on exclusive live sports programming to demand higher fees for their channels from pay-TV distributors. And those higher fees have helped them fuel earnings growth in recent quarters. Investors will get an update on Fox and CBS, which has also pushed into sports programming, when the companies post results.
Time Warner’s decision to keep its full-year profit forecast after second-quarter earnings per share beat analysts’ predictions by a wide margin also weighed on the stock Wednesday. Maintaining the guidance suggested estimates for the second half may be too high, Sweeney said. Shares of the New York-based owner of HBO were down 7 percent to $81.49 at 12:55 p.m. in New York.
Discovery, which dropped 9.5 percent to $29.74, posted results that fell short of sales and earnings estimates Wednesday. The cable-TV company still increased its outlook for annual earnings-per-share growth, excluding foreign exchanges.
Cable-TV stocks like Scripps and Viacom Inc. suffered after Disney cut its forecast for cable profit. For fiscal 2013 to 2016, the entertainment giant had promised profit growth in the high-single-digit range. Now, with just five quarters to go, the company expects a mid-single-digit gain for the division over that time frame.”
This is sort of a late wake-up call to something that has been building for a long time; look at the frame grabbed chart at the top (click here, on the image above, to see a Bloomberg video on this whole topic, with some really sharp analysis). Netflix is going through the roof with subscribers, while traditional media – i.e. television and cable – is essentially flatlining.
This has been coming for a long time, and it’s sort of a seismic shock to the system for all involved, but Netflix is really taking over the whole viewing sphere, allowing people to see whatever they want, whenever they want, wherever they want, and also to cut free of the “bundling” that cable systems force on customers, paying for what really want and nothing else.
This is just the first shot in a new system of distribution that has been building for quite a while; I’m really surprised it has taken traditional media this long to notice that frankly, they’re in long term trouble. There’s no way this trend is turning around, and what happens next is -as far as I can see- that Netflix gets bigger and bigger, and traditional media becomes less and less relevant to millennials.
We’ll have to see what happens next.