Confirming the company’s long-established strategy, Disney CFO Hugh Johnston told Wall Street analysts on Wednesday’s earnings call that there are no plans to spin off or sell linear TV networks.
This question has resurfaced in light of the changing of the guard, with Josh D’Amaro replacing Bob Iger as CEO earlier this year. Iger in 2023 made waves when he said that line networks “may not be a basic commodity”, although he later retracted the comment, calling it a public “test” of strategic thinking.
The conference call with analysts followed Disney’s report of better-than-expected earnings. The streaming benefits of Disney+ and Hulu are powered by the Entertainment category.
Competitors Comcast and Warner Bros. Discovery has made moves in recent months to clean up their linear TV balance sheets, which are experiencing a national decline due to cable cuts. Stocks of companies considered to be linear have performed very well over the past few years. Privately held A+E Global Media, the joint venture of Disney and Hearst that controls cable networks such as Lifetime and A&E, last summer hired a bank to help it explore strategic options, in part because of TV’s decline.
Comcast this year spun off nearly all of NBCUniversal’s cable networks into an independent company, Versant, while WBD announced plans to split its linear business into studios and broadcast. The WBD split was replaced by Paramount’s pending $110 million takeover bid. Paramount has shown a willingness to continue using linear networks, even though it has seen a significant decline in its linear stable.
The specific question is “obviously one that we hear a lot, so I’ll try to be as clear as I can in the answer on this one,” Johnston said. “We understand that there is a lot of focus on legacy entertainment properties, as well as ESPN.”
Networks, the exec continued, “are best thought of as brands with studios that produce content, like Bova or Shogunand we monetize that content across multiple distribution platforms. Splitting those monetization platforms into separate businesses is very complex and, in our view, unlikely to create incremental value for shareholders, especially given where linear networks are valued in today’s markets.”
Disney is also “controlling the evolution of the monetization process for these brands, and we’re actually at the bottom of that migration path,” Johnston added. “We’re generating more revenue from Disney Entertainment and streaming than linear, more than doubling when we look at this most recent quarter. So, the revenue base is getting smaller and smaller every quarter within our P&L. Ultimately, yes, net income is going down, but Disney Entertainment as a segment is growing well.”
Sports are “a different conversation,” the CFO said. ESPN is “far ahead in its transition to monetization, as it recently launched [its “unlimited” app offering] last year. However, if we look at the broadcast market in our competitive set, Netflix, Prime Video, YouTube, Paramount Plus, they are all increasing their position in live sports. Sports rights are expensive and can dissolve out of scale. But we have scale in our most important market, the US, and the largest sports media brand in the world in ESPN. We view sports as an important part of our programming strategy, and ESPN as a key partner in our distribution portfolio.”
Johnston acknowledged that ESPN’s “economic transformation” is still a work in progress, but the company is confident about “using it for our entire business.”
