Even Disney's Bob Iger Can't Escape the Media Industry's Historic Upheaval

When Disney CEO speaks, the company's shares usually make a big move. On Thursday they tumbled.
By Leon Lazaroff ,

Walt Disney Co. (DIS) - Get Report CEO Bob Iger could have retired. But he didn't, and now he has to figure out how to move a giant ship through some very choppy waters. 

While Disney's CEO succession plans remain a source of much speculation, Iger must decide how the world's largest media company can grow when its TV networks are losing pay-TV subscribers, advertising is fast moving online and the company risks cannabalizing its own revenue streams by launching direct-to-consumer streaming services ostensibly to counter Netflix (NFLX) - Get Report .

Shares of Disney tumbled on Thursday after Iger told an investor gathering hosted by Bank of America Merrill Lynch that earnings for its fiscal year ended Sept. 30 would be "in-line" with last year. That is, an increase of about 3.2%, which would fall short of analyst expecations.

That was enough to send shares down 4.4% to finish at $97.06, extending the stock's 2017 decline to 7.6% despite Iger's best efforts to soften the blow by exclaiming that 2018 will indeed be stronger than 2017.

Too little, too late.

Disney naysayer Rich Greenfield, the BTIG media analyst who famously has a rare sell rating on the stock, told CNBC that Iger is simply struggling to adapt to the same changes that are roiling all owners of TV networks reliant on pay-TV subscribers and advertising sales.

"It's just an admission that the media industry is getting more challenging and even Disney can't avoid those challenges," Greenfield told CNBC. (For the record, Pivotal Research's Brian Wieser and BMO Capital Markets' Daniel Salmon also have a sell rating, or its equivalency, on Disney.)

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Disney does have some new rides coming.

Iger is making a big bet, a multi-billion dollar bet, that Disney can launch direct-to-consumer services for both its TV and film properties as well as ESPN that can not only offset declines in pay-TV subscribers but become a source of growth for years ahead. Iger hinted at the costs, saying that its Disney-branded service coming in late-2019 will include "Star Wars" and Marvel films as well as four to five exclusive films and four to five original TV show per year on the new app.

This comes on top of investing $2.7 billion taking a majority position in BAMTech, the streaming infrastructure company, that will operate these direct-to-consumer subscription services that bypass the local pay-TV provider.

"What is Disney's future growth prospects look like as they start to transition to a direct-to-consumer company," Greenfield added. "These are going to be very expensive endeavors." 

Conversely, Wells Fargo media analyst Marci Ryvicker, who has a buy rating on the shares, was more sanguine, highlighting investor enthusiasm that Marvel and "Star Wars" will be included in the Disney-branded streaming service, that the app will also launch internationally in 2019, possible before the U.S.-based service and the revelation that pay-TV operators want to offer the platform as an add-on to the traditional bundle.

Exacerbating matters for Disney investors was Comcast Corp.'s (CMCSA) - Get Report disclosure that they are likely to lose as many as 150,000 pay-TV and internet subscribers as a result of the recent hurricanes and stepped-up competition from online and traditional pay-TV rivals.

"We still think Disney has the right strategy," wrote Ryvicker who has a $116 12-month price target on the stock.. "The problem is going to be overall sentiment, more so because of Comcast's commentary than anything else."

Ah yes, investor sentiment.

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