In 2019, The Walt Disney Co. celebrated several major successes, including the launch of Disney+ with 10 million subscribers on Day 1, a massive $71 billion acquisition of Fox's entertainment assets and the release of "Avengers: Endgame," the second-highest-grossing movie ever. These achievements showcased Disney's ability to leverage its intellectual property (IP) across various platforms, from theaters to theme parks and streaming.
Fast forward almost four years, and doubts have emerged about the wisdom of consolidating all these assets under one roof. CEO Bob Iger has pondered whether Disney has grown too large for its own good. Some Wall Street voices are even advocating for a breakup.
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Disney's parks business is showing signs of slowing down, its linear TV division is on a decline, and Disney+ subscriber growth has lost momentum. Dinsey appears to have lagged behind its competitors at the box office, leading to a nine-year low in its stock price and underperformance compared to the S&P 500.
MoffettNathanson analyst Michael Nathanson has questioned the company’s structure, proposing the creation of two Disney entities: one focused on parks, Disney+ and studio intellectual property and the other encompassing everything else, including linear networks, ESPN+, Hulu SVOD, Hulu Live TV and Disney+ Hotstar.
"So why not make a clean break?" Nathanson asked Iger on the earnings call Aug. 9.
Iger remains tight-lipped about the future structure of the company, emphasizing the examination of strategic options for ESPN and the linear networks.
Iger has identified three pillars that will drive Disney’s growth in the coming years: film studios, the parks and streaming. ESPN, in particular, is set to undergo a full transition to become a direct-to-consumer platform. Nevertheless, analysts and media experts warn that this journey could be challenging, primarily because of the high costs of sports rights and the potential resistance from consumers who already subscribe to multiple streaming services.
Splitting the company into two entities could help Disney shed its debt, remove loss-making segments, and provide a clearer vision for its future in a rapidly evolving media landscape.
Bank of America Securities analyst Jessica Reif Ehrlich argues against a clean break, stating that Disney's assets synergize, with studio IP driving the parks while linear networks generate cash for investments in growth areas like streaming.
Ehrlich suggests leveraging the brand's intrinsic value to create new opportunities. She cites ESPN's $2 billion sports betting deal with Penn Entertainment Inc. as an example of untapped potential.
But Nathanson believes that the current structure doesn't fully realize the value within Disney's assets and proposes the creation of a new company combining Disney's Parks, Experiences and Products segment with Disney+ and studio IP, potentially trading at a premium valuation because of its iconic assets and strong revenue growth.
Reevaluating corporate structures isn't unique to Disney. Other legacy media giants, such as Paramount Global and Lionsgate, have explored similar paths. Paramount, for instance, recently abandoned plans to sell a majority stake in BET Media Group, recognizing that it wouldn't significantly reduce its debt. Lionsgate has also opted to split its studio and Starz business, reflecting a broader shift toward the streaming-first era.
While the idea of splitting the company is on the table, it's not a straightforward decision, as Disney's various assets are deeply intertwined, and their separation could be challenging and may not necessarily resolve the company's current challenges.
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