Chief executive officer of The Walt Disney Company Bob Iger and Mickey Mouse look on before ringing the opening bell on the Recent York Stock Exchange (NYSE), November 27, 2017 in Recent York City.
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Normally when an individual or company sells something, the first motivation is getting back as much money as possible.
Disney‘s motivation to potentially sell ABC and its owned affiliates, linear cable networks and a minority stake in ESPN is not predicated on what these assets will fetch in a sale. It’s about signaling to investors the time has come to stop desirous about Disney as old media.
Disney’s market capitalization is about $156 billion. The corporate has about $45 billion in debt. Selling assets may also help the entertainment giant lower its leverage ratio while buffering the continued losses from its streaming businesses. Disney also could use the money to assist fund its likely acquisition of Comcast’s minority stake in Hulu.
Still, that is not the prime rationale for why Disney Chief Executive Bob Iger told CNBC in July he’s contemplating selling off media assets — something he’s long resisted. Quite, a sale of ABC and linear cable networks could be a message to the investment community: The era of traditional TV is over. Disney is prepared for its next chapter.
“Disney almost has a very good bank and a nasty bank at this point,” Wells Fargo analyst Steven Cahall said in a CNBC interview. “Streaming is its future. It’s its strongest asset, next to the parks. The linear business is something Disney has clearly signaled goes to be in decline. They are not seeking to necessarily protect it. In the event that they can move a few of that lower, negative-growth business off of the books and to a greater, more logical operator, we expect that is good for the stock.”
Nexstar has held preliminary conversations with Disney to accumulate ABC and its owned and operated affiliates, Bloomberg reported Thursday. Media mogul Byron Allen has made a preliminary offer to pay $10 billion for ABC and its affiliates together with cable networks FX and National Geographic, in keeping with an individual accustomed to the matter.
Disney released an announcement Thursday saying “while we’re open to considering quite a lot of strategic options for our linear businesses, presently The Walt Disney Company has made no decision with respect to the divestiture of ABC or every other property and any report back to that effect is unfounded.”
Declining values
The worth of broadcast and cable networks has significantly declined from the Nineteen Nineties and early 2000s as tens of hundreds of thousands of Americans have canceled cable lately.
Cahall values ABC and Disney’s eight owned affiliate networks at about $4.5 billion. That is a far cry from the $19 billion Disney paid for Capital Cities/ABC in 1995 — the deal that brought Iger to the corporate.
ESPN has a valuation of about $30 billion, according KeyBanc Capital Markets analyst Brandon Nispel, “though we view it as a melting iceberg,” he added in a September note to clients. LightShed analyst Wealthy Greenfield values ESPN at closer to $20 billion.
About 10 years ago, analysts valued ESPN at around $50 billion.
SportsCenter at ESPN Headquarters.
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Selling ABC
Disney’s most interesting decision could also be deciding what to do with the ABC network. The corporate can easily unload its eight owned and operated affiliate stations — situated in markets including Chicago, Recent York and Los Angeles — without changing the trajectory of the media industry.
But divesting the ABC network could be a daring statement by Disney that it sees no future in the published cable world of content distribution.
Selling ABC could be particularly jarring given Iger’s comments each to CNBC and in Disney’s last earnings conference call that he wants the corporate to remain within the sports business.
“The sports business stands tall and stays a very good value proposition,” Iger said last month during Disney’s third-quarter earnings conference call. “We consider in the facility of sports and the unique ability to convene and interact audiences.”
There’s clear value, no less than for the following few years, in keeping a big broadcast network for major sports leagues. NBCUniversal executives hope ownership of the NBC network will persuade the NBA that it ought to be cut right into a latest rights agreement to hold NBA games. NBC is a free over-the-air service and may increase the league’s reach, they plan to argue. Even when the world is transitioning to streaming, hundreds of thousands of Americans still use digital antennas to observe TV.
Currently, ESPN and ABC split sports rights. Selling ABC may trigger certain change-of-control provisions that force existing deals with pay TV operators or the leagues to be rewritten, in keeping with people accustomed to typical language around such deals.
Moving on from the network also may obstruct ESPN’s ability to land future sports rights deals. Without ownership of ABC, leagues may decide to sell rights to other firms, thus further weakening ESPN.
If Iger is true to his word and Disney stays within the sports broadcasting business, the corporate could have to weigh the negative externalities of losing ABC with the positive gains of showing investors it’s serious about shedding declining assets.
“Obviously, there’s complexity because it pertains to decoupling the linear nets from ESPN, but nothing that we feel we won’t contend with if we were to ultimately create strategic realignment,” Iger said last month.
The way in which forward
If Disney does land a deal to sell ABC, and investors cheer the move, it may function as a catalyst for other large legacy media firms to sell their declining assets. NBCUniversal, Paramount Global and Warner Bros. Discovery all have legacy broadcast and cable networks along with their flagship streaming services.
Disney may grow to be the leader in pushing the industry forward.
“We see this as an actual bullish sign at Disney.” said Cahall. “There’s quite a bit happening now at Disney, between ESPN and partnerships and divesting some of these items. Disney is suddenly feeling a bit of more catalyst-rich than it was recently.”
– CNBC’s Lillian Rizzo contributed to this text.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
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