Why Disney Is Down on a Strong Day for the Dow

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) is up 65 points late in today's trading session following a solid earnings report from Intel showing far better performance from PCs than expected. Earnings season seems to be proving profitable so far; we saw expectation-beating results among financials last week.

But The Walt Disney Company (NYSE: DIS  ) is down 1% after rising briefly this morning. The reason is a potential merger of two of the company's rivals.

Fox tries to buy Time Warner
It was confirmed by Time Warner (NYSE: TWX  ) today that Twenty-First Century Fox (NASDAQ: FOX  ) tried to buy the company for as much as $80 billion. It's reported that Fox offered $85 per share for Time Warner but that Time Warner's board of directors wasn't happy that the offer was for nonvoting shares, leaving the Murdoch family firmly in control of a combined company.  

So why do Disney's investors care? Disney currently owns the most valuable assets in media with ABC, ESPN, and a number of other television stations. A combined Time Warner and Fox could take over that top spot and give Murdoch the ability to leverage the company's assets in negotiations with cable companies.

Theme parks are the second-most profitable business for Disney, trailing only media.

But in the long term that's not all bad for Disney. Further consolidation of media companies would leave only four major players -- including NBCUniversal and Viacom -- and give them further leverage over cable companies and consumers of digital media. That may lead to higher prices and slower innovation in areas like streaming media, but it wouldn't be bad for shareholders.

It's also worth noting that Disney's model of creating value, from the box office to television to theme parks, is unmatched in the industry, so the profit machine that has enriched shareholders is still intact.

Disney's stock may be down today on the Fox-Time Warner news, but any deal may actually be a positive for shareholders because it would reduce competition in the media space. It's times like this when a long-term view is needed, because in the short term the market's reaction can be the opposite of what it should be.

Your cable company is scared for more reasons than one
Cable companies are being bombarded by stronger media companies as well as streaming options for consumers. But do you know how to profit? There's $2.2 trillion out there to be had. Currently, cable grabs a big piece of it. That won't last. And when cable falters, three companies are poised to benefit. Click here for their names.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3031787, ~/Articles/ArticleHandler.aspx, 9/4/2015 3:14:14 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

Today's Market

updated Moments ago Sponsored by:
DOW 16,071.48 -303.28 -1.85%
S&P 500 1,918.96 -32.17 -1.65%
NASD 4,674.94 -58.56 -1.24%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 2:59 PM
^DJI $16072.65 Down -302.11 -1.84%
DIS $100.83 Down -1.16 -1.14%
Walt Disney CAPS Rating: *****
FOX $26.70 Down -0.34 -1.26%
Twenty-First Centu… CAPS Rating: ***
TWX $69.66 Down -1.04 -1.47%
Time Warner CAPS Rating: ***