Thoughts on Disney's Situation with Linear / Streaming After Iger's Conversation

Disney stock dropped yesterday... again. And while I have talked about the Disney World side of why that might have happened, the broadcast and streaming portion is perhaps the second point of concern for investors wary of Bob Iger.

Legacy media giants are facing significant challenges with linear networks, as a weak advertising market continues to impact revenue, exacerbated by the widespread shift away from pay TV. But no legacy media giant is having nearly the troubles as Disney... as seen in the disparity between their Disney+ market share and their overall television distribution percentages (see this morning's video).

The entertainment division's domestic linear network revenue saw an 11% year-over-year decline in the quarter, with operating income within the segment falling by 18%. This was attributed to both lower affiliate revenue and a decrease in advertising revenue.

In the days before cord-cutting, linear advertising and cable affiliate fees consistently drove revenue growth. However, with advertisers increasingly favoring digital platforms like streaming, companies are starting to understand that the days of high returns from traditional TV may be over. Unfortunately, they've done it to their own industry. None of this was necessary except they all chased after the Netflix model so hard they drove the money-making-machine into the ground.

For instance, ESPN's domestic operating income dropped by 9% year over year to $780 million, mainly due to lower affiliate revenue and a reduction in subscribers as more viewers cut the cord, as reported in Disney's fiscal second-quarter earnings.

In contrast, the streaming segment showed a positive turn. The direct-to-consumer (DTC) segment, which includes Disney+ and Hulu, posted an operating income of $47 million, a significant improvement from the previous year's loss of $587 million. However, that positive turn isn't expected to last... it was artificially created by the Hollywood Strikes reducing Disney's ability to buy content from itself out of the DTC ledgers. Expect to see it back in the red for the next quarter -- yet again.

Hopefully we'll have the chance to dive into this even more during The Pro Show LIVE today at 5PM EST. I hope to see you there!

Your pal,
Pro