Disney, a prominent entertainment giant with a market capitalization of around $156 billion, is considering selling ABC and its owned affiliates, linear cable networks, and a minority stake in ESPN. However, the motivation behind this potential sale goes beyond financial gain. Rather, it is about signaling to investors that Disney is ready to embrace the future and shed its image as an old media company.
In recent years, Disney has been facing losses from its streaming businesses while grappling with a significant debt of approximately $45 billion. By selling off certain assets, Disney aims to not only lower its leverage ratio but also demonstrate to the investment community that the era of traditional TV is over. Steven Cahall, a Wells Fargo analyst, explains that Disney’s streaming business, alongside its parks, is its strongest asset, while the linear business is expected to decline. Moving the lower-growth business off the books to a more logical operator would be beneficial for Disney’s stock.
Nexstar and media mogul Byron Allen have expressed preliminary interest in acquiring ABC and its affiliates. However, Disney has released a statement clarifying that no decision has been made regarding the divestiture of ABC or any other property at this time.
The value of broadcast and cable networks has significantly declined in recent years due to the increasing number of individuals canceling cable subscriptions. Cahall values ABC and Disney’s eight owned affiliate networks at approximately $4.5 billion, a far cry from the $19 billion Disney paid for Capital Cities/ABC in 1995. ESPN, which Disney aims to keep a majority stake in, is valued at about $30 billion, although some analysts view it as a melting iceberg with a valuation closer to $20 billion.
While Disney could easily sell off its eight owned and operated affiliate stations without major consequences for the media industry, divesting the ABC network would be a bold move. Selling ABC would signal that Disney sees no future in the broadcast cable world of content distribution, which contradicts CEO Bob Iger’s previous statements expressing his desire for Disney to remain in the sports business.
There is still value in owning a large broadcast network for major sports leagues, as NBCUniversal hopes its ownership of the NBC network will influence the NBA to consider a new rights agreement. However, selling ABC could trigger change-of-control provisions, leading to the need to rewrite existing deals with pay TV operators or sports leagues. Moreover, without ownership of ABC, ESPN’s ability to secure future sports rights deals may be hindered, and leagues may choose to sell broadcasting rights to other companies, further weakening ESPN.
If Disney decides to sell ABC and investors react positively to the move, it could serve as a catalyst for other legacy media companies to sell their declining assets as well. Companies like NBCUniversal, Paramount Global, and Warner Bros. Discovery also own legacy broadcast and cable networks alongside their flagship streaming services. Disney has the potential to become a leader in pushing the industry forward by shedding declining assets and focusing on the streaming future.
Disney’s potential sale of ABC and other media assets goes beyond financial considerations. It represents a strategic shift for Disney, signaling a departure from traditional TV and embracing a streaming-focused future. The valuation of these assets has significantly declined, and selling them could help Disney reduce its debt and strengthen its position in the streaming market. However, the decision to divest ABC presents a dilemma, as it may impact ESPN’s sports rights deals and standing in the industry. Nevertheless, if Disney successfully sells ABC and achieves favorable investor response, it may inspire other media companies to follow suit in transforming their business models for the digital age.