Could Spin Out ESPN, ABC by End of 2023, Analyst Says
- 20th December 2022
in September, former Walt Disney CEO Bob Chapek told
investors the company had no interest in selling ESPN.
In fact, he seemed keen on the idea of adding wagering
to the companys sports portfolio.
Chapek has since been ousted, with Bob Iger back in
for a second stint as CEO. The change at the top could
trigger a significant shift in strategy.
Fargo media analyst Steven Cahall asserted in a research
note Tuesday that he thinks Disney (ticker: DIS) could
spin off ESPN and ABC as a separate company before
the end of 2023, leaving Disney as a pure play
IP company, generating multiple revenue streams
from franchise intellectual properties such as Marvel,
Star Wars and Pixar.
think Bob Iger is returning to Disney ready to make
big changes, Cahall writes. In the near
term, we think the CEO and his key reports are focused
on content and cost rationalization. However, over
the longer term we expect a deeper think on portfolio
reshaping. Recall that Iger built Disney into what
it is today: a franchise IP leader with global scale.
ESPN, traditionally the cash cow, is neither owned-IP
nor global the way the rest of Disney is. With linear
and sports trends diverging from core IP, we think
severing the company is increasingly logical.
point is that Disney doesnt actually own the
underlying content when it comes to sports programmingand
sports programming doesnt travel well internationally.
He also thinks that investors are increasingly
put-off by having to calculate into their financial
models how fast the companys linear-television
business is declining, even as the direct-to-consumer
streaming business improves.
rationale for considering an ESPN spin is not financial
engineering, but rather portfolio Improvement,
the analyst adds. Linear is mostly sports and
domestic, while [streaming] is global and leverages
owned franchise IP. That IP ties directly into Parks
experiences, consumer products and gaming. Sports
does not have these ancillary monetization models.
Core Disney, he says, is a franchise IP company
with a monetization flywheel, while ESPN is
a distribution business where value accrues
Cahall: There is very little reason for Disney
and ESPN to remain together given the evolution of
said, the analyst says Disney has some work to do
to get ready for a potential spin.
one thing, Cahall finds that the ESPN/ABC combination
accounts for more than 100% of the companys
overall free cash flow. Cahall thinks as a precursor
move, ESPN will launch a stand-alone streaming service,
a move he considers long overdue in a world of accelerating
cord-cutting. He also thinks Disney needs to
work hard on cost rationalization. And he thinks
Disney ought to consider selling its two-thirds stake
in streaming service Hulu to Comcast (CMCSA), which
owns the other thirdComcast CEO Brian Roberts
has made it clear that hed buy the rest if Disney
wants to sell, and they agree to terms.
the Hulu stake, Cahall adds, would shore up
the balance sheet and assuage fears from debt-rating
view is that with a split, Disney can focus on an
IP strategy, and ESPN can figure out how to price
and monetize sports, which is increasingly tricky.
He asserts that investors can build their own portfoliosand
that ESPN inside Disney is a portfolio with
less and less logical connection as time goes by.
didnt immediately respond to a request for comment.
stock on Tuesday was 2.2% higher, at $87.70. The stock
is down 43% for the year to date.