How Iger Could Do What Chapek Wouldn’t: Rebrand ESPN!

Disney will spin off ESPN in 2023

Analysts believe that Bob Iger has a clear “gameplan” for 2023, with the primary focus being the spin-off of ESPN, and that he did not return to Disney as CEO just for laughs.

Analysts at Wells Fargo stated that it is “increasingly logical” for Disney to separate the sports network. As a result of Iger’s return, the shift is seen as much more probable, even if it necessitates some reorganization of the balance sheet.

We believe Bob Iger has returned to DIS with a game plan to both improve operations organically and shape the portfolio towards a new future, the analysts wrote. The potential for strategic change is higher than ever, in our opinion, now that Bob Iger is back in charge at DIS. If anything, Iger will be remembered for his business dealings.

Activist investor Daniel Loeb’s advocacy for Disney to spin off ESPN has stoked speculation amongst analysts and investors that the company may do so. After talking with Disney’s upper management, Loeb retracted his statement and even gained a friend on the Disney board. On the other hand, that was back when Bob Chapek was CEO; Iger may have a different perspective.

Analysts have defended the decision by noting that Disney makes a lot of money off of sports, but that the company’s linear business is contracting while its streaming business is expanding, and that everything Disney releases on the direct-to-consumer side is intellectual property that Disney owns and can even tie into parks and other aspects of the business. Sports and ESPN’s licensing deals with the major leagues aren’t that, and they even “create a constant headache of earnings risk and valuation.”

In a nutshell, DIS is an intellectual property (IP) company that has a monetization flywheel. In the sports industry, leagues serve as the intermediaries of value creation. With the changing landscape of media consumption, we see little value in DIS and ESPN continuing their partnership, as stated in the attached note.

This would allow Disney to concentrate solely on its own intellectual property and streaming ambitions while granting ESPN the freedom to develop its own standalone major sports streaming product. It’s understandable that Disney’s upper management has been hesitant to “take the plunge” because it would require so much time and attention to figure out how to implement what analysts have called a “rip the band-aid off” event that will cannibalize the linear side of the business.

Must Read:

Since a spinoff of ESPN would not generate entirely positive free cash flow, analysts believe that Disney may need to consider selling Hulu to Comcast in order to make the deal work. Disney currently controls 66% of Hulu and has until 2024 to make a decision on the remaining 34%. What it needs to finish the ESPN rebrand could be as little as an additional $18 billion, which it could get by selling Hulu.

What Would Happen To ESPN Without Disney?

Despite being consistently one of the most-watched channels (according to VIZIO’s Inscape data), ESPN is also one of the most expensive to broadcast. With Disney’s clout at the negotiating table, ESPN was able to secure a per-subscriber cost of close to $7.50 in 2020.

What Would Happen To ESPN Without Disney

Due to its massive viewership, ESPN can and will continue to negotiate a hefty fee with MVPDs. Yet, how can ESPN continue to charge such a high rate if it is no longer bundled with the other Disney networks?

The ESPN main channel earns the most ad impressions and has the best game inventory of any of the available channels, so how does ESPN convince MVPDs to carry the entire family of ESPN networks in addition to the main channel?

Possibly ESPN2 is included, but what about ESPNU, ESPNEWS, the SEC Network, the ACC Network, and the Longhorn Network? The certainty of the situation has the potential to drop significantly.

Must Read:

When It Comes To Disney, What Do You Think Of The Package Deal?

You can subscribe to ESPN+ for $7.99 a month, or pay $13.99 a month to get ESPN+ plus Hulu and Disney+, both of which have much larger subscriber bases and a lot more premium inventory. The number of ESPN+ subscribers keeps rising, but would that trend persist if ESPN+ wasn’t included in the Disney package? And how many of the rumored 14. 9 million current subscribers would remain if it were decoupled from the other Disney services?

When It Comes To Disney, What Do You Think Of The Package Deal

Without Disney, ESPN must either immediately pivot ESPN+ to become a legitimate, streaming-focused version of your linear networks, or continue treating it as overflow and hope you can eventually convince people to head there.

We know that the first choice is challenging. Why? Not because it’s a bad idea, but because it’s what started Disney wanting to split up in the first place. Disney would transition ESPN into ESPN+ streaming if it were simple to do so. When a network puts all of its eggs in the steaming basket, it risks losing advertising revenue and viewers who prefer to watch live sports on a linear schedule.

ESPN isn’t alone in having this problem, unfortunately. This is an issue for any network that broadcasts live sporting events. On the other hand, ESPN stands alone as the only major national sports network that isn’t owned by or otherwise affiliated with any of the broadcast networks.

That’s why either an all-in bet by ViacomCBS on Paramount+ or an all-in bet by NBCU on Peacock is a good bet. There’s no doubt that they could have a negative impact on advertising revenue in the near future. Not every episode, though; they have a much longer shelf life than live sporting events.

Is There A New Source Of Funding?

Financially, ESPN is stable on its own. Its growth to become the “Worldwide Leader in Sports” can be attributed in part to the financial backing and stability provided by Disney.

As a result, it was able to take calculated risks, invest in the long-term success of the company, allocate substantial resources toward developing its human capital, and, as is customary, pour large sums of money into rights deals. The money spent would be recouped with the live sports events. And if they don’t, Disney will most likely foot the bill.

Due to the lack of a “wealthy benefactor,” ESPN may come to regret the number of large, long-term deals it has signed. This is because ESPN’s competitors still have broadcast dollars backing them. When considering the SEC’s renegotiation of its $3 billion deal now that Texas and Oklahoma are included, this is potentially bad news. Will ESPN be able to afford the NBA’s new rights deal, which includes a significant pay increase for the league?

Because ESPN’s distribution channels are an important consideration when negotiating TV rights contracts. In addition to the carriage (discussed above), ESPN programming can also be seen on ABC. Without it, there will be a lot more championship and playoff games shown on cable,

which will likely result in fewer viewers and less advertising revenue. Not that ESPN can’t afford to pay whatever the NBA or anyone else wants for TV rights, of course. When one of the primary channels for reaching an audience is cut off, however, the challenge becomes much greater.

Disney Is Better Off Without Sports?

Theoretically, as a standalone media company, ESPN might have an easier time negotiating with sports leagues. It could also help Disney break into the gambling industry, which could be a tough sell for a more family-oriented Disney.

Cahall added that it makes sense to spin off both ABC and ESPN because together they form an even more formidable sports media giant.

Disney Is Better Off Without Sports

Because of the broadcast network’s improved negotiations in sports rights, “we think ESPN and ABC are integrally linked,” he wrote, and viewers can expect to see more of the same sports on both networks.

When CNN asked Disney for a response to Cahall’s report, the company declined to do so.

Nonetheless, in a press release issued this week, ESPN bragged about its performance in 2022, saying, “ESPN continued to build a strategic path forward while connecting with audiences in innovative ways.” In addition, ESPN noted that “throughout the year, ESPN successfully reached sports fans in record numbers.”

Conclusion

Loeb suggested that “a strong case can be made that the ESPN business should be spun off to shareholders with an appropriate debt load” in an August letter to Disney’s former CEO Chapek. As far as I can tell, Loeb’s letter avoided any mention of ABC.

ESPN would be better off independent from Disney, according to Loeb, because “ESPN would have greater flexibility to pursue business initiatives that may be more difficult as part of Disney, such as sports betting,” and because “customers of ESPN and sports leagues would be better served by a focused management team.”

But Loeb reconsidered his position quickly. Loeb tweeted one month after his letter to Chapek, “we have a better understanding of ESPN’s potential as a standalone business and another vertical for [Disney] to reach a global audience to generate ad and subscriber revenues.”

Author

  • Karan Sirari

    I am an author and a public speaker. I was born in India and have travelled to many different countries. I have a masters in public communication from California University and I love to write about famous peoples from different industries.

0 Shares

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

Share via
Copy link
Powered by Social Snap