'We see it as a reasonably probable late-'23 event,' writes Wells Fargo's Steven Cahall.
In the near term, Cahall expects Iger and his team to focus on content and cost rationalization. “However, over the longer term, we expect a deeper think on portfolio reshaping. Recall that Iger built Disney into what it is today: a franchise IP leader with global scale. ESPN, traditionally the cash cow, is neither owned-IP nor global the way the rest of Disney is. With linear and sports trends diverging from core IP, we think severing the company is increasingly logical.
Separating ESPN and ABC “would leave remaining Disney as an attractive pureplay IP company,” the Wells Fargo expert emphasized. “We also think investors are increasingly put off by trying to determine how fast linear networks — most of which is ESPN/ABC — is declining as direct-to-consumer profits improve. The seesaw creates a constant headache.
Cahall noted though that “if Disney sees the world the way we do, then it has work to do in prep of a spin.” He then mentioned potential initiatives and moves that could be in store. “First, we think ESPN would go a la carte in streaming as that band-aid is long overdue to be ripped off in a world of accelerating cord-cutting. That puts pressure on ESPN/ABC’s linear cash flows, and Disney’s non-ESPN/ABC linear networks .
Cahall adds that he sees a separation of ESPN and ABC from the rest of the company as having various benefits. “Disney can move forward with an IP strategy, while ESPN can determine how best to price and monetize sports, which is increasingly tricky. Investors can build their own portfolios, and we think ESPN inside of Disney is a portfolio with less and less logical connection as time goes by. As such, to us, it’s a reasonably probable event for late 2023.
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