The Magic Kingdom is at risk of losing some of its magic.

For years, Disney was the envy of its industry, the media giant that thrived like no other. The firm’s stock rose 335% between CEO Bob Iger’s appointment in March 2005 and one year ago, when the stock peaked at $120 a share. Since then, the stock has lost more than a fifth of its value, thanks to the impact of cord cutting on its cable properties, notably sports behemoth ESPN.

Disney fell another 3% in late trading Thursday immediately after it missed revenue and earnings estimates for the second time in three quarters. (It rose over 2% later in the evening.) Revenue in the Magic Kingdom totaled $13.1 billion, below Wall Street’s consensus estimate of $13.5 billion. Earnings per share of $1.10 fell six cents short of expectations. Disney’s year-ago quarter had an additional week of operations that the company said accounted for 13 cents a share of profit. While analysts were aware of the extra week, the stock still fell short of Wall Street expectations.

This marks a break from past years, when Disney would routinely beat Wall Street’s forecasts quarter after quarter. The culprit again is the company’s cable networks, notably ESPN but also the Disney channels, which saw a 7% drop in revenue and a 13% drop in operating income.

By contrast, revenue from Disney’s broadcast networks, like ABC, rose 8%, while operating income rose 37%. The problem is, Disney’s cable networks have long accounted for about half the company’s operating profit. Worse, operating profit also declined in other areas, such as theme parks and games (both down 5%) and film studios (down 28%.)

The disappointment largely centers around a threat that Disney and media companies have seen coming for a dozen years: the rise of digital content. Online streaming is going from a fringe medium to a mainstream preference, thanks in good part to the ubiquity of mobile devices. To many, a cable subscription is no longer seen as a necessity. This threat is even more perilous for ESPN at a time when NFL ratings are slumping and younger viewers are gravitating toward digital alternatives.

To head off such threats, Disney vowed in August to invest in a tech infrastructure to make more money from a streaming version of ESPN. It bought a one-third stake in BAM Tech, a streaming technology backed by Major League Baseball, for $1 billion. “Through this investment,” Iger said at the time, “we plan to launch a new, direct-to-consumer ESPN-branded, multi-sport subscription streaming service.”

But as some pointed out, the digital service would offer new ESPN-branded content but not the ESPN channels. The strategy shows, in a nutshell, the dilemma Iger is facing with ESPN. If he opens ESPN’s channels up to digital streaming, he risks cannibalizing his premier cable asset. But any alternative moves he’s made are so far looking like too little too late.

Disney could make a bold acquisition to gain a stronger foothold in digital media. The company was reportedly in the running as a suitor for Twitter, one that the Twitter board itself seemed to prefer. But the company backed away after its shareholders balked at the notion of taking on a social network plagued with abusive trolls. Another rumored purchase of Netflix didn’t pan out, largely because Netflix is pricey and doesn’t want to sell.

One bright spot in all of this should be Hulu, the Netflix rival crafted by media giants, in which Disney is a part owner. However, Disney said that equity losses from Hulu were a drag on its overall profitability, a trend that stretches back to earlier quarters.

In a conference call to discuss earnings, Iger expressed his optimism for ESPN’s future, saying that “the causes of those losses [in subscriptions] has abated,” that its direct-to-consumer ESPN product launching next year will appeal to millennials, and that a Nielsen survey showing ESPN disappeared from 621,000 homes last month was misleading because it didn’t count digital subscriptions.

“We’ve taken a more bullish position on the future of ESPN’s [subscription] base,” Iger said. “We fully expect to return to more robust growth in fiscal 2018 and beyond.”

Those soothing words helped Disney’s stock recover from the early selloff, but bigger challenges remain. Short of an acquisition or two of influential digital media properties, Iger has few options for a quick fix. Earlier Thursday, Liberty Media chairman John Malone mused on CNBC about some unpalatable options for Disney.

“If somebody went after Disney, my guess is Apple would have to finally make a decision,” Malone said. “If I had to guess, you will see a split of Disney wth ESPN spun off . . . Apple would be more interested.”

One year ago, when the cracks in the Disney empire began to become apparent, this scenario was unthinkable as Iger’s legacy. Even now, such an outcome seems unlikely. But if Iger doesn’t make some quick moves to adapt to the digital media landscape, Disney may find itself riding the Tower of Terror.

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