Last week Disney (DIS) released earnings that fell short of Wall Street's expectations, specifically Disney announced that Nielsen estimated that ESPN lost over 3.2M subscribers over the previous twelve months. That set off a wave of selling in not only Disney's stock but other media companies as well. As other media companies released earnings later in the week it didn't matter if they beat, met, or fell short of expectations, they still went down. Disney, Twenty-First Century Fox (FOXA), Viacom (VIAB), and Discovery Communications (DISCA) were some of the hardest hit. The fear among Wall St. is that cord cutting by consumers, getting rid of traditional cable tv packages, will mean lower profits for media companies. The Disney report has everyone particularly worried because ESPN has been seen as the most immune to this trend as there is not really a streaming alternative for live sports.

We think the reaction on Wall St. has been completely overblown. Over the past year my intern has been helping us research media stocks, in particular Discovery Communications, and I thought now would be a good time to share with you what we've been finding as we've been researching the media industry. I should also point out that I'm writing this from the point of view of someone who has cut the cord themselves. I have no cable TV package, just cable internet, at home. (We'll see how long I can hold out once the NFL season starts!) So we are definitely not naïve when it comes to assessing the threat that cord cutting and streaming poses to the media industry.

Let's get the biggest and easiest issue out of the way first. American's (and the rest of the world) still love planting their duff in front of the magical electronic entertainment box.  Pick any study you like, I copied one below, and it will show Americans keep watching more and more TV.

Last year we surpassed 5 hours per day! So, Americans love being entertained and that is not changing. Americans still want high quality video entertainment, the type of products that the major media companies produce.

The biggest issue is how that entertainment is delivered and consumed. The world is switching from traditional cable television to other alternate methods.