Investors may be pleased with Disney's choice to think about putting certain long-established media companies up for sale, even if the financial worth of the assets isn't significant.It's more meaningful to Disney and its shareholders to unload these legacy businesses, which have a slower growth rate, than to make a large amount of money from the sale.Disney has deliberated with Nexstar regarding the sale of ABC and its local affiliated companies, although there's no guarantee an agreement will come to pass.
The primary motivation for Disney when potentially selling ABC and its owned affiliates, linear cable networks and a minority stake in ESPN is not about getting the most money possible. Instead, it's sending a message to investors that the entertainment giant is transitioning away from traditional TV. This move could also help lower debt and fund potential acquisitions. Bloomberg reported Thursday that Nexstar has had preliminary conversations with Disney to acquire ABC and its owned and operated affiliates. There have also been preliminary offers from media mogul Byron Allen that would pay $10 billion for ABC and its affiliates along with FX and National Geographic. Disney's statement Thursday stated they are "open to considering a variety of strategic options for our linear businesses," however, there has not been any decisions made at this time regarding the divestiture of ABC.
The worth of broadcast and cable networks has drastically reduced since the 1990s and the early 2000s, as an increasing amount of Americans have cut their cable service. Ryan Cahall estimates that ABC and Disney's eight owned networks amounts to $4.5 billion, which is far less than the $19 billion Disney paid in 1995 for Capital Cities/ABC ,and the reason Bob Iger is with the company. Ryan Nispel from the KeyBanc Capital Markets approximated that ESPN's value sits at around $30 billion, although his prediction was that ESPN would continue to depreciate in value. In response to this, the LightShed's analyst Rich Greenfield revised this value to closer to $20 billion. After CNBC's inquiry, Bob Iger responded that Disney generally wants to keep a majority stake in ESPN, possessing currently 80% of the business, with Hearst holding the other 20%. A decade ago, the evaluation of ESPN was approximately $50 billion.
Disney's most interesting decision may be deciding what to do with the ABC network. Selling off the eight owned and operated affiliate stations — located in markets like Chicago, New York and Los Angeles — may be an option for the company, although it wouldn't result in major changes in the media industry. Divesting from ABC, however, might be a way for Disney to indicate that they don't believe in the cable broadcast distribution of content. This would be particularly striking when considering CEO Robert Iger's recent words; both in an interview with CNBC and in Disney's last earnings conference call, he has expressed his desire to keep the company in the sports business. He argued that "the sports business stands tall and remains a good value proposition" and mentioned the "power of sports and the unique ability to convene and engage audiences".
Selling ABC could possibly lead to a reworking of existing agreements with both pay TV operators and sports leagues, as some of these contracts will have change-of-control provisions. It could also impede ESPN's chance at future sports rights deals. Therefore, Disney must take into account the potential drawbacks of getting rid of ABC against the positive outcome that it could show investors as far as actively getting rid of declining assets. Iger asserted that dealing with the evolution from linear networks to ESPN streaming is not an issue that cannot be confronted, and he expressed his opinion that "ultimately [it] could create strategic realignment".
If Disney succeeds in clinching an agreement to sell ABC and investors welcome the news, it could act as a motivating factor for other major legacy media companies to offload their declining properties. NBCUniversal, Paramount Global and Warner Bros. Discovery all have traditional broadcast and cable networks in addition to their premier streaming services.It appears that Disney may take the lead in pushing the industry forward. According to Cahall, “We view this as an undeniably bullish sign for Disney. There is a lot happening at Disney at the moment in terms of ESPN, partnerships and divesting certain operations. This could be seen as a rather encouraging development for Disney.”– CNBC journalist Lillian Rizzo made a contribution to this article.Disclosure: Comcast, the parent firm of CNBC, owns NBCUniversal.WATCH: In the opinion of Wells Fargo analyst, Nexstar certainly possesses the ability to take over ABC and turn it into a profitable venture.
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