Bob Iger
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If one thing defined Bob Iger’s tenure as Disney’s CEO between 2005 and 2020, it would be the deals.
In 2006, he acquired a computer animation company founded by Steve Jobs called Pixar for $7.4 billion; In 2009, he acquired the unlucky comic book publisher Marvel for $4 billion; In 2012, he led George Lucas’ acquisition of Lucasfilm for $4 billion; In 2017, he bought a controlling stake in BamTech, a streaming video provider that was the backbone of Disney+ and Hulu, for $1.6 billion; and in 2019, he acquired Fox’s entertainment assets in a whopping $71 billion deal.
Thanks to a Blockbuster interview on Thursday, it seems clear that Iger’s second tenure as CEO will also be marked by his business execution. This time, however, he is primarily a seller, not a buyer.
Speaking to CNBC’s David Faber at a makeshift roadside TV in Sun Valley, Idaho, Iger opened up about Disney’s future in streaming and what it means for many of its legacy companies.
In ESPN’s case, that likely means a “strategic partnership” that will help it make the leap to direct-to-consumer.
In the case of its linear TV channels, Iger’s comment that “they may not be the core of Disney,” is Sun Valley’s equivalent of a “For Sale” sign.
“Transformative work is about companies that aren’t growth companies and what to do with them, particularly the linear business that we’re thinking about broadly,” Iger told Faber.
The CNBC host then quoted the ABC broadcaster and its local TV stations as well as the FX cable station and asked Iger directly if those were for sale and if they weren’t central to Disney, to which Iger replied.
“The distribution model, the business model that is the foundation of this business and that has made huge profits over the years, is definitely broken. And we have to call it what it is,” added Iger.
Wells Fargo analyst Steven Cahall wrote Thursday that the sale of the linear assets would improve Disney’s CAGR (which measures a company’s growth rate) to more than 20 percent. The ABC Network, its local stations, FX, Freeform and Disney’s 50 percent stake in A+E Networks are all seen as gains by Cahall.
“Disposal of such assets would raise cash and enhance EPS growth,” Cahall wrote, adding that “the rationale would be to get rid of an asset of concern to investors while also entering a higher-growth, leaner DIS.” “
Who would buy a declining asset like linear TV networks?
“DirecTV has been sold and private equity is involved in linear TV broadcasting,” Cahall wrote. In other words, the future of ABC or Freeform could resemble that of newspapers, where private equity and hedge funds are buying up declining but cash-flow-rich companies and finding a way to maintain margins.
In ESPN’s case, Iger made it clear that Disney intends to retain ownership… but that a “strategic partner” who could bring something to the table would be welcome.
“Whether it’s the value of the content, whether it’s the value of distribution, whether it’s the capital … if they come to the table with a value that allows ESPN to capitalize on its direct-to-consumer offering.” then we will be very receptive to that.” ,” he said.
In other words, he wants to find a well-funded company that has an interest in becoming a major player in esports and has the ability to quickly scale a premium service, and is willing to share ownership of ESPN Disney (and possibly Hearst) to share. which still owns a minority stake in ESPN).
With such a description, the big tech giants Apple, Amazon and Google (via the video platform YouTube) immediately spring to mind. They have more than enough money to fund ESPN, a global reach, and a desire to build big streaming video companies.
They also have a strong interest in esports: Amazon has landed a multi-billion dollar deal for NFL Thursday night football games, YouTube pledges $2 billion annually for NFL Sunday ticket rights, and Apple has one with MLS 10-year, $2.5 billion deal secured.
Coincidentally, some of these potential partners are already in Sun Valley and are believed to be meeting with Iger for the annual BBQ dinner next to the Sun Valley duck pond. Among those spotted at the Idaho resort this week are YouTube CEO Neal Mohan and Apple CEO Tim Cook. It should be noted that Iger appeared at Apple’s most recent product event, where he touted the potential ESPN and other Disney deals for Apple’s Vision Pro headset.
One possible dark horse would be Netflix, which has long had an interest in esports but balked at the expense. While Netflix is more of a direct competitor to Disney than Apple, Amazon, or YouTube, the combination of the two companies could be what it takes to propel ESPN into a thriving post-linear world.
And then there’s Disney’s Star India deal. The company is evaluating its strategic options of either an outright sale or a new joint venture to complete one of the critical international parts of the 21st Century Fox acquisition.
ABC and Disney’s linear cable channels, ESPN, Star India: They may not be intellectual property, but they are historic media brands. And now, interested parties could potentially buy a chunk of it, or buy it outright, as Iger re-positions ESPN for a profitable streaming future.
That streaming future is the one piece of the puzzle that Iger still seems greedy about. Comcast has an option to force Disney to buy out its remaining 25 percent stake early next year.
“There is a mechanism to ultimately determine the fair market value and we will go through the process with them,” Iger told Faber. “The goal is to do it as quickly as possible.”
With Disney already pledging to bring Hulu content to Disney+ by the end of this year, Comcast’s takeover is all but certain.
In his first 15 years as CEO, Iger spent around $90 billion on acquisitions, but also grew Disney’s market cap from $48 billion to $257 billion. That growth, however, coincided with the pay-TV business’s money-making machine.
Iger’s vision for Disney seems smaller and more focused this time around, a company that can ditch the legacy of cable and satellite TV and put it more directly in competition with (and possibly in partnership with) streaming-only companies like Netflix. Apple and YouTube.
“Rome was not built in a day and the problems of the DIS will not be solved in Iger’s first year,” wrote Cahall. “But today’s interview suggests action is underway.”