Disney, a renowned entertainment giant, is considering selling ABC and its owned affiliates, linear cable networks, and a minority stake in ESPN. Unlike most sellers motivated by financial gains, Disney’s primary drive is to reposition itself as a modern media company and signal to investors that the time for traditional TV is over. With a hefty market capitalization of approximately $156 billion, Disney seeks to reduce its leverage ratio with asset sales, while also cushioning the continued losses from its streaming businesses. However, the real reason behind this potential sale lies in Disney’s readiness for its next chapter.
As the streaming industry continues to gain prominence, Disney recognizes the declining prospects of traditional linear TV. Wells Fargo analyst Steven Cahall aptly describes Disney’s current situation as having a “good bank and a bad bank.” While streaming stands as Disney’s future and strongest asset alongside its parks, the linear business is expected to decline. By offloading some of the lower-growth businesses, Disney aims to streamline its operations and hand them over to more suitable operators, ultimately benefiting its shareholders.
Several potential buyers have shown interest in acquiring ABC and its affiliates. Nexstar, a prominent media company, has engaged in preliminary conversations with Disney, while media mogul Byron Allen has presented an initial offer of $10 billion for ABC and its affiliates, along with cable networks FX and National Geographic. However, Disney has clarified that no decision has been made regarding the divestiture of ABC or any other property at this point.
The value of both broadcast and cable networks has substantially declined over the years. While ABC and Disney’s eight owned affiliate networks are currently valued at around $4.5 billion, it is a far cry from the hefty $19 billion that Disney paid for Capital Cities/ABC in 1995. ESPN, with an approximate valuation of $30 billion, has encountered challenges in recent years. KeyBanc Capital Markets analyst Brandon Nispel referred to ESPN as a “melting iceberg,” while LightShed analyst Rich Greenfield estimates its value to be closer to $20 billion. Nevertheless, Disney intends to retain the majority stake in ESPN, considering it a valuable component of their sports media business.
Disney faces a significant decision regarding the fate of the ABC network. While selling off the eight owned and operated affiliate stations may not drastically alter the media industry’s trajectory, divesting the ABC network itself would send a bold statement. It would imply that Disney holds no faith in the future of broadcast cable content distribution. This move would be particularly striking, especially considering Bob Iger’s recent comments expressing the company’s intention to remain in the sports business. Iger emphasized the value of sports and its ability to engage audiences during Disney’s third-quarter earnings conference call.
Despite the transition towards streaming services, there is still clear value in retaining a large broadcast network for major sports leagues. NBCUniversal, for example, is using its ownership of the NBC network to negotiate a new rights agreement with the NBA. NBC’s broader reach as a free over-the-air service can potentially increase the league’s viewership. Additionally, millions of Americans still rely on digital antennas to watch TV. However, divesting the ABC network may trigger change-of-control provisions and impact existing deals with pay TV operators or leagues. Moreover, it could hinder ESPN’s ability to secure future sports rights deals, potentially pushing leagues towards other companies and further weakening ESPN’s position.
Should Disney proceed with selling ABC and receive positive feedback from investors, it has the potential to become a catalyst for other legacy media companies. NBCUniversal, Paramount Global, and Warner Bros. Discovery, among others, all possess legacy broadcast and cable networks alongside their flagship streaming services. Disney’s bold move may prompt these companies to consider divesting their declining assets, accelerating the transformation of the media industry.
Disney’s potential sale of ABC and its associated assets signifies a significant shift in the media landscape. The decision to sell is driven by Disney’s desire to shed declining assets, embrace streaming as a primary focus, and position itself as a forward-thinking media company. While the fate of ABC remains uncertain, the potential consequences of divesting it highlight the complex considerations Disney must navigate. Ultimately, Disney’s actions may not only impact its own future but also shape the strategies of other media giants.
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