Walt Disney may want to cut the cord on itself. The $285 billion Magic Kingdom has old-school television channels — ABC, ESPN, and some others — that are weighing down its valuation. But AT&T’s soon-to-be-former content business WarnerMedia is offering a breakup blueprint that Disney boss Bob Chapek could follow.
WarnerMedia, which is preparing to merge with Discovery, and partner ViacomCBS are mulling the sale of jointly-owned broadcaster CW Network, according to the Wall Street Journal on Wednesday. Local TV group Nexstar Media is one of the interested parties that may take a majority stake in CW.
Changing trends
Traditional TV networks like ABC and ESPN make revenue two ways: from advertisers that buy spots during programming breaks and from cable distributors that pay a monthly fee. As television watchers move to on-demand services, the business is stagnating. At Disney, revenue for the division that has ABC and ESPN grew just 2 per cent last year compared to the previous year while the direct-to-consumer business that houses streaming service Disney+ grew 55 per cent.
The trouble with ditching networks like ABC is that they can’t afford to fund the programming they need. Without refreshing that content, the networks have little value, and so one requires a relationship with the other. But under one scenario in the WarnerMedia deal with Nexstar, there’s a solution. The sellers would continue to provide programming as minority owners and receive payment.
Long-term plans
Disney could mimic this, sell its TV assets to a private equity firm, and act as a programming supplier while retaining the streaming rights for Disney+. There are some kinks. Disney probably likes exclusivity of shows but could lose that privilege. Still the company already has some workarounds with movie releases, which may initially appear only in theatres before becoming available on say Disney+.
And there is a reason to ponder such exercises. On Nexstar’s multiple of 7 times EBITDA, Disney’s networks could be worth some $60 billion, and cash from a sale could be used to fund new programming and help grow Disney+. At the same time, it could ditch a business that is dragging down its own multiple. Netflix, which has only streaming assets, has an enterprise value of about 30 times forward EBITDA, according to Refinitiv, while Disney is closer to 20 times. Having a blueprint in the back pocket may come in handy.