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Disney's ESPN Likely to Cut Jobs; Subscriber Woes Remain

There seems to be no end to the plight for The Walt Disney Company’s DIS ESPN, as the media behemoth is struggling to bring ESPN back on track. As per media, the company is preparing to lay off workers at ESPN, in an attempt to reduce cost.

Per sources, the layoffs are likely to be completed by June and will be limited to only on-air commentators and content creators. Notably, the previous retrenchment by the company was announced in 2015.

For some time now, declining subscriber count and higher programming costs have been a cause of concern for investors. Disney’s primary cash cow, ESPN, has been under immense pressure as the Pay-TV landscape continues to change owing to migration of subscribers to online TV. Falling subscriptions will have a telling effect on the network’s ad revenues.

ESPN has been losing subscribers on a regular basis. It lost nearly 3 million subscribers in the past one year as the number of cord cutters continues to increase. At the end of the fourth quarter of fiscal 2016, ESPN had a subscriber base of nearly 89 million in comparison with 92 million at the end of the prior-year quarter and more than 100 million in 2010.

In the recent past, dismal performance of ESPN has also dragged down Disney’s overall financial results. In the first quarter of fiscal 2017, ESPN witnessed decline in average viewership and advertising rates mostly due to lesser College Football Playoff games in the quarter. Further, fresh NBA agreement and increase in contractual rate for NFL programming drove the overall programming cost higher for ESPN. Ad revenues of ESPN declined 7% during the quarter. Most of the media companies are failing to cope with "cord cutting" as consumers are unwilling to pay for large bundles of channels.

However, Disney is striving to bring back ESPN’s golden days. In an effort to attract online viewers, the company has inked a deal with video streaming, data analytics as well as commerce management company BAMTech. Further, the company has the option to acquire majority of the stake in BAMTech, in future.  Disney stated that it will use BAMTech to create an ESPN-branded, over-the-top (OTT) video streaming service that will cover a variety of sports. Further, it is putting a lot of effort to make content accessible to more customers. The company also stated that AT&T’s DirecTV will feature channels like ESPN, ESPN2, ABC, Freeform, Disney Channel, Disney XD as well as Disney Junior in their subscription packages in the upcoming DirecTV Now OTT service.

In the past one year, the Zacks Rank #3 (Hold) company’s shares have gained 13.2% driven by blockbuster performance of its movies along with growth in Parks & Resorts division. However, it failed to outperform the Zacks categorized Media Conglomerates industry which has witnessed an increase of 18.9% in the same time frame. Moreover, in the past one year shares of Comcast Corporation CMCSA and Time Warner Inc. TWX have rose 28.5% and 44.1%, respectively.

Stock to Consider

A better-ranked stock worth considering is Grupo Televisa, S.A.B. TV, which currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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Time Warner Inc. (TWX): Free Stock Analysis Report
Walt Disney Company (The) (DIS): Free Stock Analysis Report
Grupo Televisa S.A. (TV): Free Stock Analysis Report
Comcast Corporation (CMCSA): Free Stock Analysis Report
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