ROBERT SIEGEL, HOST:
If you were holding stock in the company that made the new “Star Wars” movie – that would be Disney – you might expect to see a bump in value. But the day that the force awakened, shattering box office records, shares in Disney closed down. That surprised us. To find out what’s happening with that company, we turn to Ben Fritz, entertainment reporter for The Wall Street Journal. Hiya.
BEN FRITZ: Hi, Robert.
SIEGEL: Last week when “The Force Awakens” opened in theaters around the world, everyone knew it was going to make a killing, but Disney stock is down nearly 10 percent this month. What’s going on?
FRITZ: Sure. Well, I think a lot of investors assume that “Star Wars,” which is owned by Disney since they bought Lucasfilm a few years ago, was going to be a blockbuster. And it is, and that’s great. But people on Wall Street are always looking for the cloud inside a silver lining, and at the same time that “Star Wars” is great, ESPN, the popular sports network which Disney also owns, is facing some challenges. And that is a big concern for people on Wall Street, and they’re sort of looking at it as an opportunity to say, woah, hold on; it’s not all roses and sunshine at Disney.
SIEGEL: Now, Disney remains a profitable company…
FRITZ: Very much so.
SIEGEL: …Doing better than some other broadcast companies. Everybody’s having a drop in viewership and advertising. What’s the big problem with ESPN that you spoke of?
FRITZ: The big problem, Robert, is that ESPN has been the growth driver for Disney for quite a while. It’s been growing at a, you know, high single-digit rate every year. And the company had told investors to expect that for the next several years. But then in August, they said, well, it’s not going to be growing quite as fast as we had hoped. And the reason is that the young people are not subscribing to cable as much as they used, so there are fewer people paying for ESPN. And you know, they are certainly trying to develop a new digital plan, you know, to be delivered over the Internet and so on, but that future is uncertain. And the way they’ve been making big money in the past is kind of falling apart.
SIEGEL: How many subscribers has ESPN lost?
FRITZ: Yeah, so they lost 3 million this year, 4 million the year before. They’re currently at 92 million. And there’s no reason to think that that path is not going to continue. That’s worrisome of you’re a Disney investor because no matter how much money they’re making from “Star Wars,” they seem to be losing growth on the cable business at the same time.
SIEGEL: Yeah. Ben, help me out here a little bit. I’ve always assumed that if anybody has cable television, they have ESPN. It would be the – that and C-SPAN would be the most logical things you’d find there.
FRITZ: Yes, yeah – no. Almost anybody who has cable does have ESPN, but not as many people have cable anymore. And what you’re seeing is a lot of what they call in the industry cord-nevers, which are people in their 20s who are saying, why even start subscribing to cable; I can get everything I was from Netflix or Amazon or Hulu and – to kind of pick the services that I want. And if you do it that way, then you don’t get ESPN.
SIEGEL: Where does ABC Television figure in all this? Is it doing well? Is it – does it bring in less than ESPN?
FRITZ: ABC is doing relatively well compared to other broadcast networks, but that’s like saying you’re doing really well these day in the newspaper business. It’s a tough business in broadcast, and it makes a lot less money than cable and ESPN. So no matter how well ABC does, it’s kind of a drop in the bucket compared to cable networks like ESPN.
SIEGEL: Disney recently announced that it’s adding a huge “Star Wars” theme to its Disneyland Park in California, talks of spinoff movies, TV shows. There’s merchandise everywhere you turn. Is Disney banking on “Star Wars” to keep the company profitable?
FRITZ: Very much so. “Star Wars” is not the only thing they have, but it’s quickly become one of, if not, their absolute biggest franchise. And outside of ESPN, Disney has kind of built its business around these franchises like “Star Wars” and Marvel superheroes and “Frozen.” And so that’s very much a big part of the company’s future. “Star Wars” is at the heart of it. And I think the question for any Disney investor is, is the growth of these franchises like “Star Wars” enough to make up for the challenges in cable TV, specifically ESPN.
SIEGEL: Ben Fritz, entertainment reporter for The Wall Street Journal, thanks.
FRITZ: Sure. It’s my pleasure.
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