Disney CEO Bob Iger will spin off ESPN in 2023, analysts predict

ABC and Hulu are the other potential pieces in the CEO’s 2023 chess game, analysts at Wells Fargo predict.

Bob Iger hasn’t come back to serve as Disney CEO just for fun, and analysts believe he has a clear “game plan” for 2023 — most notably the spin-off from ESPN.

Wells Fargo analysts wrote that the event Disney finally spins off the sports network is becoming “increasingly logical.” While it will require some balance sheet shaping, Iger’s return makes the move much more likely, they predict.

“We believe Bob Iger has returned to DIS with a plan to both organically improve operations and reposition the portfolio for a new future,” the analysts wrote. “We believe that with the return of Bob Iger as CEO of DIS, the potential for strategic change is greater than ever. After all, Iger’s legacy is transactions.”

Analysts and investors have been flirting with the possibility of Disney spinning off ESPN for some time, and those discussions grew louder after activist investor Daniel Loeb backed the move. Finally, after speaking to Disney Brass, Loeb to pull back out of that position and even got a friendly face on the Disney board of directors. But that was when Bob Chapek was in charge, and Iger might see it differently.

Analysts’ arguments for the move are that while the esport is making Disney big bucks, the company’s linear business is shrinking, its streaming business is growing, and everything Disney puts out on the direct-to-consumer side is IP, that the company owns and may even tie into parks and other facets of the business. Sports and the licensing deals that ESPN has with the big leagues aren’t, and in fact create “a constant headache of revenue risk and valuation.”

“In short, DIS is a franchise IP company with a monetization flywheel. Sport is a distribution business where leagues add value. We believe that given the evolution of media consumption, there is very little reason for DIS and ESPN to stay together.”

This would allow Disney to focus solely on its own IP and streaming ambitions, while ESPN as a standalone company could figure out how to develop its own major sports streaming product. Figuring out how to do what analysts are calling a “rip the tapeid off” event that will cannibalize the linear side of the business is something that would take a lot of time and attention from Disney management to get it right No wonder they’ve been reluctant to “take the plunge.”

Since ESPN isn’t fully free cash flow positive if it were to be spun off, analysts believe that one option Disney would need to explore for it to work would even be for Disney to sell Hulu to Comcast. Disney owns two-thirds of Hulu and has until 2024 to decide on the remaining third. If it were to sell Hulu, an additional $18 billion could come in the door and be just what it takes to complete the ESPN spin.

“Bob Iger is known for these acquisitions [sic], and we think his return to DIS signals a willingness to make bigger decisions. ESPN has been a constant problem with more problems than solutions, and we believe Spinning + DTC is on a much firmer footing,” the note concludes. “The ties between ESPN/ABC and Content DIS are thinning, so we see this transaction as the best way forward.”

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https://www.indiewire.com/2022/12/bob-iger-espn-spinoff-disney-analyst-2023-1234793932/ Disney CEO Bob Iger will spin off ESPN in 2023, analysts predict

Lindsay Lowe

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