Disney Considers Selling ABC and Media Assets
Bob Iger, the Chief Executive Officer of The Walt Disney Company, and Mickey Mouse were spotted at the New York Stock Exchange (NYSE) on November 27, 2017, ringing the opening bell. It’s unusual for a company to sell assets primarily to maximize profits, but Disney’s potential sale of ABC and its affiliated networks is not about the money. Instead, it’s a strategic move to signal to investors that Disney is no longer “old media.”
With a market capitalization of around $156 billion and a $45 billion debt, selling these assets will help Disney lower its leverage ratio and offset losses from its streaming businesses. However, the main reason for the potential sale, as stated by CEO Bob Iger in a July interview with CNBC, is to convey to the investment community that the era of traditional TV is over for Disney, and the company is ready for its next chapter.
“Streaming is its future. It’s its strongest asset, next to the parks. The linear business is something Disney has clearly signaled is going to be in decline…” says Wells Fargo analyst Steven Cahall.
Although Disney has not made a decision regarding the divestiture of ABC, Nexstar and media mogul Byron Allen have expressed preliminary interest in acquiring ABC and its affiliates. The decline in the value of broadcast and cable networks, coupled with the increasing cancellation of cable subscriptions, has influenced the potential sale. Furthermore, analysts estimate the value of ABC and its affiliated networks to be approximately $4.5 billion, a significant drop from the $19 billion Disney paid for Capital Cities/ABC in 1995. ESPN, valued at about $30 billion a decade ago, now faces a valuation closer to $20 billion.
Disney’s decision to potentially sell ABC would be a bold statement that it sees no future in the traditional broadcast cable world of content distribution. However, it may affect ESPN’s ability to secure future sports rights deals and may require the rewriting of certain change-of-control provisions in existing contracts with pay TV operators and leagues. Yet, if successful, Disney’s move could serve as a catalyst for other media companies to follow suit and divest their declining assets.
In conclusion, the potential sale of ABC and Disney’s media assets is not driven solely by financial gains but rather signals Disney’s readiness to move on from traditional TV. It represents a strategic shift towards streaming and future growth while acknowledging the decline in linear cable networks. If Disney successfully sells ABC and investors respond positively, it could pave the way for other legacy media companies to follow suit.
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