Mouse Hunt

Disney Earnings Show Why It's Not Done With Deals

As it tries to counter cord-cutting, the company could use another big acquisition -- even if isn't Fox.
Photographer: Joe Raedle/Getty Images
As of 1:46 PM EST
111.60 USD
As of 1:46 PM EST
45.71 USD

Why on earth would a mouse chase a fox, you ask? Walt Disney Co.'s earnings have the answer.

Shares of Disney -- home to Mickey Mouse, of course -- haven't had their usual twinkle the last two years as TV viewers switched to cheaper streaming packages or got rid of cable all together. (Its prized ESPN division has become a particular sore spot for those reasons and more.) Those trends continued to pressure Disney in its latest quarter. 

Time for Another Deal?

Disney is down 1.5% this year, which doesn't sound that bad, but at this rate it would be the stock's worst calendar-year performance since 2008

Source: Bloomberg

The $158 billion company said late Thursday that revenue and profit declined on an annual basis for the first time since 2009, back when the U.S. was just beginning to emerge from a recession. Partly to blame for Disney's disappointing results were issues encountered in the usual course of business: bad weather (especially Hurricane Irma, which whacked Disney World) and a write-off of an animated film that the company isn't going to release. But aside from those setbacks, lower advertising revenue and higher sports-programming costs dinged Disney's media-networks division.

Nielsen data also recently showed an accelerated decline in Disney's cable ratings heading into the fall months. They were 12 percent lower this year through September, dragged down by its namesake channels. 

Tuning Out

Even a beloved brand like Disney hasn't been safe from steep cable-ratings declines:

Source: Nielsen, Bloomberg Intelligence

Note: Prime time, live plus 7 days, ages 18-49

This echos the challenges facing not just other TV-network owners, but also the companies that distribute the content. Earlier on Thursday, satellite-TV provider Dish Network Corp. reported its own third-quarter results. And while the company attributed the majority of its customer cancellations to Hurricane Maria -- which led to the one-time removal of 145,000 subscribers in Puerto Rico and the U.S. Virgin Islands -- the company has been hemorrhaging subscribers for a while now.

Moving Online

Dish, an early entrant in over-the-top TV streaming, is hoping its Sling TV product will help make up for subscriber losses in its satellite business

Source: Bloomberg

For its part, Dish is trying to retain so-called cord-shavers with its Sling TV product. Disney is now trying something similar, having decided to stop selling movies to Netflix Inc. and instead launch its own online product next year that will be filled with its own premiere TV and movie content -- and the more the merrier. Against this backdrop, the news this week that Disney reportedly considered acquiring the majority of 21st Century Fox Inc.'s assets shouldn't come as a total shocker.

Buying Fox's film studio and certain TV networks would provide Disney with more offerings to entice subscribers. As for Fox's motivations, I explained Wednesday that it's rather simple: Fox may be worth around $25 billion more than its current market if the Murdochs break it up and sell off certain pieces. That's at least according to a sum-of-the-parts analysis from Wells Fargo & Co. The Murdochs would shift their focus to their profit centers, which are Fox News and programming on its regional sports networks, and reap a lot of money in the process. 

The talks between Disney and Fox are said to be dead, or perhaps on ice for now. But Fox has a pretty good reason to reignite them with Disney or find another suitor, and Disney is clearly looking to scoop up more content. In that case, the potential for dealmaking puts a floor under their stock prices. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    Tara Lachapelle in New York at

    To contact the editor responsible for this story:
    Beth Williams at

    Before it's here, it's on the Bloomberg Terminal.