Walt Disney Company CEO Bob Iger and Mickey Mouse look on before the opening bell at the New York Stock Exchange (NYSE) on November 27, 2017 in New York City.
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Usually when a person or company sells something, the main motive is to get as much money back as possible.
disneyThe company’s motivation for potentially selling a minority stake in ABC and its affiliates, linear cable networks and ESPN is not predicated on the value of those assets on sale. That signals to investors that it’s time to stop thinking of Disney as old media.
Disney’s market capitalization is approximately $156 billion. The company has about $45 billion in debt. The asset sale could help the entertainment giant lower its leverage ratio while cushioning continued losses from its streaming business. Disney could also use the cash to help finance Comcast’s acquisition of a minority stake in Hulu.
Still, this was not the main basis for Disney CEO Bob Iger telling CNBC in July that he was considering selling media assets, something he had long resisted. That’s what happened. If anything, the sale of ABC and linear cable networks will send a message to the investment community. “The era of traditional television is over.” Disney is gearing up for its next chapter.
“There are pretty much good banks and bad banks for Disney at this point,” Wells Fargo analyst Stephen Cahall said in an interview with CNBC. “Streaming is the future of the company. It’s the strongest asset next to the parks. The linear business clearly signals that Disney is going to decline. They’re not necessarily trying to protect it. They’re going to pull some of it down. Negative growth businesses can be taken off the books, and better, more logical managers think that’s a good thing for the stock price. ”
nextstar Bloomberg reported that it has held preliminary discussions with Disney to acquire ABC and its owned and operated affiliates. reported on thursday. Media mogul Byron Allen has made a preliminary offer to pay ABC and its affiliates, cable networks FX and National Geographic, $10 billion, according to people familiar with the matter.
Disney issued a statement Thursday saying, “While we remain open to considering various strategic options for our linear operations, at this time the Walt Disney Company does not intend to proceed with the sale of ABC or any other assets or any reporting thereof.” “We have not made a decision,” he said. There is no basis for the effect. ”
decline in value
The value of broadcast and cable networks declined significantly in the 1990s and early 2000s, as tens of millions of Americans canceled their cable TV subscriptions in recent years.
Cahall values the eight affiliated networks owned by ABC and Disney at about $4.5 billion. That’s a far cry from the $19 billion Disney paid Capital City/ABC in 1995, the deal that brought Iger to the company.
ESPN is valued at about $30 billion, but “we view it as a melting iceberg,” KeyBanc Capital Markets analyst Brandon Nispel said in a September note to clients. added. LightShed analyst Rich Greenfield values ESPN at nearly $20 billion.
Disney would do that. Iger told CNBC he wants to maintain a majority stake in ESPN. The company currently owns 80% of the sports media business, with Hearst owning the remaining 20%.
About 10 years ago, analysts cherished on ESPN Approximately $50 billion.
Sports Center at ESPN Headquarters.
Washington Post | Washington Post | Getty Images
ABC sales
Disney’s most interesting decision may be deciding what to do with the ABC network. The company could easily sell his eight owned and operated affiliate stations in markets such as Chicago, New York and Los Angeles without changing the trajectory of the media industry.
But selling the ABC network would be a bold statement that Disney doesn’t see a future in the broadcast cable world of content distribution.
The sale of ABC would be particularly jarring given Mr. Iger’s comments on CNBC and Disney’s last earnings call that he wanted to stay in the sports business.
“The sports business is solid and remains a great value proposition,” Iger said last month during Disney’s third-quarter results. Earnings conference call. “We believe in the power of sport and its unique ability to attract and engage audiences.”
There is clear value in maintaining large broadcast networks for major sports leagues, at least for the next few years. NBCUniversal executives are hoping that the network’s ownership will convince the NBA that it should strike a new rights deal to broadcast NBA games. They plan to argue that NBC is a free wireless service that could expand the league’s reach. Even as the world moves toward streaming, millions of Americans still watch TV using digital antennas.
Currently, ESPN and ABC are splitting sports rights. ABC’s sale could trigger certain change-of-control clauses that force existing contracts with pay-TV operators and leagues to be rewritten, according to people familiar with the typical language of such deals. That’s what it means.
Exiting the network could also hinder ESPN’s ability to enter into future sports rights deals. Without ABC’s ownership, leagues could choose to sell their rights to other companies, further weakening ESPN.
If Mr. Iger is true to his word and Disney stays in the sports broadcasting business, the company will have both the negative externalities of losing ABC and the positive benefits of showing investors it is serious about reducing asset decline. You will have to weigh the benefits.
“While there are complexities associated with separating Linear Net from ESPN, there is nothing that we feel we cannot address if it ultimately creates a strategic realignment,” Iger said last month.
Way forward
If Disney reaches an agreement to sell ABC, and investors support the move, it could serve as a catalyst for other major legacy media companies to sell off their declining assets. NBCUniversal, paramount global and warner bros discovery All companies have traditional broadcast and cable networks in addition to their flagship streaming services.
Disney could be the leader moving the industry forward.
“We see this as a really bullish sign for Disney,” Cahall said. “There’s a lot going on at Disney right now between ESPN and the partnership, and maybe selling some of it. Disney suddenly feels like they’ve got a little bit more catalyst than they’ve had lately.”
– CNBC’s Lillian Rizzo contributed to this article.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
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