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With his public comments that Disney’s linear television business is no longer at the company’s core, CEO Bob Iger signaled that the media conglomerate is ready to let go of distribution assets previously at the center of its mission. As streaming redefines the future of entertainment, Iger’s decision previews how the industry overall might have to shrink their television assets to make room for future growth.
It’s been a long time coming. The decline of the linear TV business model has been apparent for years. But even so, the idea that ABC, one of the Big Three broadcast networks — not to mention well-known cable brands like Disney Channel, National Geographic and FX — are no longer vital assets to Disney marks a step toward a bleak future for legacy television that perhaps the industry hasn’t wanted to actually say out loud.
“What will happen is that these businesses will be slashed to fractions of their current size,” a former Disney executive told TheWrap. “The broadcast networks are still the only way to reach 125 million to 130 million American homes… so they will always be there. But it’s just going to be a lot smaller, and that means fewer jobs and lower wages.”
A Disney spokesperson declined to comment for this story.
Why selling ABC would be good for Disney
Analyst estimates vary widely in terms of how much Disney could collect from a sale, ranging from $8 billion to $23 billion, depending on which networks were included in a potential deal and how the value of each broadcast and cable channel was calculated. In his comments, Iger emphasized that ESPN was not among the assets on the chopping block, though he said he would seek strategic partners to help move the sports network into a fully direct-to-consumer business in the near future.
Wells Fargo stock analyst Steven Cahall, whose analysis of a potential sale also included the company’s Star India assets, wrote in a July 13 note that these assets are dragging down Disney’s bottom line. Divesting the linear networks could boost Disney’s stock price by up to $10, Cahall calculated. He added that Disney’s strong operating income from its theme parks division allows it to afford letting go of the TV business’ cash flow, an option other major media companies don’t have, given their current dependence on cable earnings.
Cahall also noted that money from the potential sale could help fund the cost of Disney’s payout for Comcast’s minority stake of Hulu, which is expected to happen sometime in 2024.
“Rome wasn’t built in a day and [Disney’s] problems won’t be solved in Iger’s first year,” Cahall wrote. “But [last week’s] interview does suggest action is underway.”
Who would buy ABC?
Three former network TV executives pointed to Sinclair Broadcast Group, Nexstar Media Group — which recently purchased The CW, and is in the process of revamping the network’s operations toward profitability — and private equity firm Apollo Global Management as potential buyers in separate conversations with TheWrap.
“Some of these folks who own a lot of television stations might think I’ll take a network now,” one of those individuals said. “And they’re committed to that business. They could run it efficiently.”
The person continued, “Private equity firms might look at this and go, ‘Well, look, these businesses are still meaningful and if we slashed the costs, we could run a profitable business for some period of time and turn it into something that’s not going to grow but at least it’ll be more profitable.”
Other companies flagged by the executives as potential buyers of the assets include broadcast and media company Tegna, Allen Media Broadcasting, Hearst and private equity firms TPG and Silver Lake.
What these potential new owners have in common is they would approach running the business from a cost-cutting perspective.
“None of these places are looking at this saying, ‘The future of this business is bright,’” the insider said. “Those days are over, and that’s what Bob is saying.”
A spokesperson for Sinclair Broadcast Group declined to comment on this story. Representatives for Nexstar and Apollo didn’t respond to TheWrap’s requests for comment.
Iger’s hints at Disney’s future
While questioning the CEO’s decision to blurt out such a major business shift in an interview pegged to the renewal of his contract through 2026, one former executive called the soundbite an example of Iger’s “famous honesty and bluntness” — and a message to Wall Street, potential buyers and employees that Disney is gearing up for major changes in the coming years.
The individual explained, “He’s signaling to Wall Street, ‘We’re realistic about our problems.’ He’s signaling to potential buyers, ‘Hey, you want to come buy a distressed asset? You can come buy our networks,’ and he’s signaling to the employees of the company, ‘Brace yourselves. There’s a rough landing ahead. It’s going to be tough. It’s going to be bumpy.’”
Since then, Iger addressed the future, among other topics, during an off-site meeting with the senior leaders of Disney’s television business hosted by Dana Walden on Tuesday. During which, he tried to ease fears sparked by the CNBC interview and reportedly emphasized the value of the Disney’s TV divisions, along with his commitment to ABC News with the intention of moving those efforts into the company’s streaming endeavors.
The individual said, “He’s not just standing there saying, ‘Hip hip hooray! I’m doing two more years as [CEO].’ He’s saying, in his way, very realistic and sober, ‘I’m doing this because there are very big challenges that Disney faces. This is going to be a very tough time in which we’re going to have to do some very tough things. This company that I just built for the last 15 years is now going to have to get smaller in order to continue to grow.’”
Lucas Manfredi and Sharon Waxman contributed to this story.
