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Disney Is King Of The Content Wars

|Includes: CMCSA, The Walt Disney Company (DIS), NFLX, TWX

A week ago, Disney reported earnings at which point something remarkable took place. It plunged. Why? Because of a 1% decrease in revenues from ESPN. Panic selling gripped the stock, and then a pile of cord-cutting is the future blogs flew out of the gate taking down the cable stock sector with it.

How big of a threat is cord-cutting? I believe it is the future, and a la carte programming is nearing. However the entire infrastructure remains in the hands of the cable and internet companies. They are the owners of the wires needed to transmit the content.

This is why Netflix has limited original content and cannot go it alone. $NFLX depends on internet providers to allow access to it. Cable companies were very prudent in their acquisitions of internet service providers (NYSE:ISP) to cut them off from doing exactly what we all yearn for. Comcast, Cox, Time Warner all own the only means of transmission other than over the air radio frequencies. I have not yet heard of any internet over the air yet, and Wi-max was a lost cause.

So is it reasonable to conclude that a 1% drop in revenues, part of a continued trend with ESPN, is part of a cord-cutting revolution within our communities? Lets factor in that this earnings report is out of football season and basketball season. Did anyone consider this as a reason why maybe people may not have included ESPN in a basic cable package? Do analysts realize that many people un-subscribe to channels during off seasons? I regularly cancel HBO when Game of Thrones is off season, does that mean HBO is in a cord cutting decline? Of course not.

In conclusion, the cord cutting revolution is not yet upon us. Many source content providers will need to start rolling out a la carte apps and offerings via internet and broadband connected devices for streaming and live content. Showtime and HBO have done this already. I believe that channels such as Food Network, Cartoon Network and Disney need to start spinning off channels using this type of nexus in order to continue growth in the broadcast content segment. Disney XD has Star Wars Rebels, which is a huge hit and it needs to be provided to the masses by more than just a cable box.

I am long Disney, I don't see any reason to panic on revenue drop at ESPN. Although understandably it has become 5% of total revenue for the company. Does anyone believe Disney will idly stand by and watch this sportscaster juggernaut crash and burn?

Disclosure: I am/we are long DIS.