Disney stock hasn’t been all that entertaining this year. Shares in Disney (NYSE: DIS), the world’s largest entertainment company, are trading at just under $100 a share, off more than 20% from the all-time highs it made at the end of last year.

Some investors are worried about the decline of Disney’s cable business — in particular, the steady decline in ESPN subscribers.This has been especially troublesome, as Disney’s cable network, which also includes ABC and Disney Channel, generates the bulk of its revenues.

In particular, the cable business generates nearly 60% of Disney’s overall profits. And the workhorse of the cable business is ESPN, which accounts for about 75% of Disney’s cable revenues.

I wrote about Disney’s outlook a few months ago when it was working on a digital strategy. However, Disney’s most recent quarterly results were another disappointment — as ESPN again lost subscribers. It still has nearly 90 million subscribers, but has lost about 10 million since 2013.

Disney’s Biggest Headwind

The biggest headwind for Disney has been the fact that consumers, namely millennials, have been canceling cable service or not signing up in the first place. Essentially, ESPN is struggling to survive in an internet-only world.

With more households opting to go without cable, there are less broadcasting advertising revenues for channels like ESPN. Making things worse is that ESPN is one of the more expensive channels for cable companies to offer — thus, it’s generally the first to be excluded. This is especially true in the case of “skinny bundles,” in which some cable companies offer contracts with limited channel selection. However, ESPN is excluded from most of those, given its cost.

The answer might be for Disney to turn ESPN into a streaming offering — basically the Netflix (NASDAQ: NFLX) of sports. And it appears that Disney is taking the first steps, which should be good news for investors.

A Reason To Invest in Disney Stock?

Disney has taken the first steps to bring ESPN into the digital world. This includes the investment Disney announced earlier this month — in which it spent over $1 billion to take a 33% stake in BAMTech — a video streaming service that was created by Major League Baseball.

The plan at Disney is to leverage BAMTech to offer its first-ever digital subscription service, which will include content from ESPN. This is the first meaningful move we’ve seen from Disney when it comes to pushing ESPN into an online-focused world. This new online only service from Disney and BAMTech is expected to launch by the end of the year.

Also, the BAMTech service will also include sports such as tennis, basketball, football, baseball and college sports — making it the first major multi-sport subscription service. If things go as planned with BAMTech, Disney has the option to acquire over 50% of the company in the next few years.

The Rest Of The Disney Empire

Disney managed to bring in $2.6 billion in profits just last quarter, up 5% from the same quarter last year. Although the number of ESPN subscribers continues to fall, the rest of the Disney businesses, which includes amusement parks, toys, and movies, are doing well.

In its movie business, Disney has put out four of the top five films in 2016, including “Captain America” and “Jungle Book.” Movie revenues were up 40% just last quarter. And there’s plenty more to come on the movie front, as Disney owns Marvel and Star Wars, which are set to release additional sequels next year.

Meanwhile, it also opened the $5.5 billion Shanghai Disney Resort in June — its largest foreign investment to date. This helped push park and resort revenue up by 8% in the second quarter.

Big Step for Disney

Ultimately, Disney has a lot going on right now. The “bad news” is the shift away from cable, which is hurting ESPN, but it’s also overshadowing some of what Disney is doing right with the rest of its empire.

Disney is already working on making ESPN more appealing to millennials with BAMTech investment and it’s also looking to make ESPN a part of AT&T (NYSE: T)’s new DirecTV online video service.

Disney’s  returns and margins are superior to any other entertainment company you’ll find and it’s paying out a 1.5% dividend yield. So right now, Disney stock is a buying opportunity; investors have yet to figure out many of Disney’s so-called issues are just near-term hurdles. Disney has realized that the shift toward online video viewing is real and I expect to hear more from the company before 2017 on this front.

Published by Wyatt Investment Research at