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Disney Feels The Heat As Children Lead The Cord Cutting Revolution

For a while now we've noted that it's actually the youngest among us that are leading the cord cutting revolution. Viacom has watched channels like Nickelodeon experience a ratings free fall for several years now as streaming alternatives have emerged as a useful alternative to strictly-scheduled, commercial-bloated Saturday morning cartoons. Toddlers don't really care if they're watching the latest and greatest "True Detective" episode or not, and parents, like everybody else, are tired of paying for bloated cable bundles filled with channels they never watch.

Like Viacom, Disney has been feeling the brunt of this evolution, especially since cable TV accounted for 30% of its revenue and 43% of profits last fiscal year. But, as evident by the ongoing subscriber exodus at Disney-owned ESPN, the company really hasn't really done a very good job adapting to the changing market. The same thing is occurring at Disney's kid-oriented networks like the Disney Channel, Disney Jr., and Disney XD, all of which are, well, not faring particularly well under this new streaming paradigm:

"For the first six months of this year, the commercial-free Disney Channel's ratings among in its core 2-11 and 6-14 demographics fell 23% in prime time and 13% and 18%, respectively, during the full day, compared with the same period a year ago. Ratings are also down at the smaller Disney Jr. and Disney XD networks, which fall under Mr. Marsh's Disney Channel umbrella.

Cable revenue at Disney is relatively flat, and operating income is down 6% in the first half of the current fiscal year. That has contributed to a freak out or two among Wall Street analysts, which have in recent months finally, truly woken up to a trend they spent years both ridiculing and denying. That's in large part thanks to the fact that 2016's 1.7% decline in traditional cable TV viewers was the biggest cord cutting acceleration on record. The second quarter is expected to be notably worse, with most analysts predicting a 1 million subscriber decline (or greater).

And that fear on Wall Street has, in turn, forced traditionally myopic cable executives to finally realize that they need to stop trying to defend the traditional bloated cable TV cash cow -- and begin offering cheaper, more flexible streaming alternatives:

"Disney Chief Executive Robert Iger has said that strengthening online accessibility for television programs is a priority and that the company is preparing to offer its channels, in part or whole, directly to consumers online rather than just through costly cable packages. Profits for Disney Channel and Freeform are driven in part by long-term contracts with cable companies, but the erosion in ratings is likely to ultimately hit the bottom line unless the networks can generate substantial new digital revenue."

Of course, like the Millennials ahead of them, most of these kids will grow up (correctly) believing its bizarre and punitive to force people to buy oodles of often-horrible cable TV channels at outrageous prices. And contrary to some cable and broadcast executives who still think this is all just a temporary blip on a radar screen, this rise in competition and the resulting massive shift toward cheaper, more flexible viewing options isn't going anywhere.

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