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Why Disney Shares Are Still Lower — Jim Cramer

Will this Disney (DIS) quarter be the one that will be remembered for hitting the dreaded "delta?"

I am talking about the fourth letter of the Greek alphabet, which stands for change of any changeable commodity and it's a curse word when it comes to the analysts who cover Disney. This is because of the negative rate of change of the fortunes of the honey pot ESPN, and it was invoked loud and clear on last night's conference call. It's why Disney fell in after-hours trading and remains down today.

The delta's usually spoken about in hushed terms, and never right to the face of CEO Bob Iger. But this quarter was different, and it hit you like a two-by-four in the conference call. Sure, this quarter Disney went all into streaming platforms. Yes, we all now know about the big news of the $1 billion paid for one third of the outfit owned by Major League Baseball, known as BAMTech, where sports content currently not on ESPN but bought and paid for by Disney already will soon appear in an à la carte pay-as-you go method. That will give ESPN more monetization, which it apparently so desperately needs to change the delta.

But it's Disney's loud and clear involvement in two large non-traditional cable entities, Hulu and Direct TV, which broke the taboo. And it was Alexia Quadrani from JP Morgan who did the breaking, with this verbatim quote off the call: "first, with two of the bigger kind of streaming platforms launching over the next sort of six or so months, DTV and Hulu, and Disney's presence in both those packages, Bob (CEO Bob Iger) do you think this could become the delta that investors maybe are looking toward, or are worried about (emphasis mine) in terms of creating a more notable shift away from linear TV or the traditional bundle?"

I thought Iger deftly handled the whole exchange, pointing out that when companies have tried to do skinny bundles without ESPN they haven't worked. He made clear that the more places you can get ESPN, the more money that can be made. Call it the "more the merrier" mantra. He followed that up in his interview with CNBC, where he said BAMTech would "jumpstart" ESPN's numbers. As long as Disney is out there with ESPN in many venues, not compromising the deals it offers to major cable companies, venues including skinny Over the Top bundles, Iger believes it's good news for the company, because it is monetizing content that isn't being monetized enough. No cannibalization, just content you haven't seen on ESPN that could be additive to earnings on the key media networks line.

So, in other words, in Iger's world there is no concern about Disney hitting that delta point, where the rate of the change of the decline of traditional subs is so overwhelming that we will pay less for the stock. There's just more opportunity.

The analyst didn't follow up, but the delta question hung there, like some...