Market strategist: Disney has an 'ESPN problem'
Disney said Monday its Paris-based theme park will reopen July 15, after a four-month shutdown due to the coronavirus pandemic. That’s the same week Disney’s Florida-based themed parks will reopen. Shanghai Disney reopened on May 11, and tickets sold out within minutes.
While your favorite rides and characters will be there, the experience will be decidedly different. Disney (DIS) is limiting attendance, increasing cleaning and requiring physical distancing and mask wearing.
Despite the changes, Michael Lee, chief strategist at Michael Lee Strategy, expects business to boom. “I think those parks are going to be packed. I think they’re going to come back strong,” Lee told Yahoo Finance’s “The First Trade.”
“People are going to surprise you with their love of Disney World and their ability to get back out there and go on Splash Mountain,” he said. “People who love Disney are going to continue to love Disney.”
But Lee’s bullish outlook for Disney’s theme parks does not spill over into its entire ecosystem.
Is ESPN no longer Disney’s crown jewel?
“The problem with Disney is an ESPN problem,” Lee said. “As great a company as Disney is, there are structural issues. They need to address that fact that they’ve built a business model that is unsustainable.”
Lee says ESPN overpaid for multi-year sports contracts, and with very little sports happening right now, viewership is down and revenue is drying up.
Following a big drop in primetime viewers during the pandemic, ESPN’s executives took a 20% to 30% pay cut and asked its 100 highest-paid TV commentators to agree to a 15% salary reduction. Disney’s executive chairman, Bob Iger, agreed to forgo all of his annual $3 million base salary.
“Until you have that high-level content drawing people into your subscription service, it is just a massive structural issue. You combine that with the fact that it’s very difficult for them to create content for their other platforms and at the box office [during the pandemic], this is a real problem for what has historically been one of the best-run companies in the world,” says Lee.
Disney doesn't break out ESPN's financial performance, but it is one of the company’s highest-grossing businesses. ESPN is part of Disney’s media networks business, which earned $25 billion in revenue last year. Based on current cable subscription fees, ESPN accounted for nearly a third of that total, and it represents advertising gold.
It’s the highest-rated cable channel among men and reaches an incredible 200 million viewers per month.
MLB standoff
ESPN could use a little of Disney’s pixie dust in the ongoing deadlock between Major League Baseball and its players.
“Major League Baseball had an opportunity to capture the entire country and re-engage an entire generation of people into baseball,” said Lee. “The fact that they can’t come to an agreement is not only a huge blow for them, it’s a huge blow for ESPN.”
He added: “If there were 3 or 4 baseball games every single day going on right now, people would be glued to ESPN like you wouldn’t imagine, and that would do a whole lot for people signing up for ESPN+.”
It’s still yet to be seen if the National Football League will start it regular season on time.
Disney's stock has recovered from the worst of its spring lows but is still down 20% in 2020, and Lee said ESPN will be an “overhang” on the stock price for the foreseeable future.
Alexis Christoforous is co-anchor of “The First Trade on Yahoo Finance. Follow her on Twitter @AlexisTVNews.
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