In 2019, The Walt Disney Co. celebrated a string of monumental achievements, from the successful launch of Disney+ to the acquisition of Fox’s entertainment assets and the blockbuster release of “Avengers: Endgame.”
These triumphs underscored Disney’s knack for capitalizing on its intellectual property (IP) across a wide spectrum of platforms, spanning theaters, theme parks, and streaming services.
However, as we approach the four-year mark since these victories, doubts have surfaced about the wisdom of consolidating these diverse assets under a single roof. CEO Bob Iger has raised questions about whether Disney has grown too expansive for its own good, with some voices on Wall Street advocating for a potential breakup.
Disney’s empire is displaying signs of deceleration in various sectors. Its parks business is experiencing a slowdown, the linear TV division is on a downward trajectory, and the once-rapid growth of Disney+ subscribers has lost momentum. Disney’s performance at the box office appears to have lagged behind its competitors, leading to a nine-year low in its stock price and underperformance compared to the S&P 500.
Two entities
MoffettNathanson analyst Michael Nathanson has even gone so far as to propose the creation of two separate Disney entities: one concentrated 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.
“Why not make a clean break?” Nathanson queried Iger on the recent earnings call.
Iger has remained tight-lipped about the future structure of the company, underscoring the examination of strategic options for ESPN and the linear networks.
Iger has outlined three pillars to propel Disney’s growth in the forthcoming years: film studios, the parks, and streaming. ESPN, in particular, is poised for a full transition into a direct-to-consumer platform. However, analysts and media experts caution that this journey could prove arduous, given the exorbitant costs associated with sports rights and potential resistance from consumers who are already subscribed to multiple streaming services.
Splitting the company into two entities might enable Disney to shed debt, divest loss-making segments, and provide a clearer vision for its future in a swiftly evolving media landscape.
Studio vs Parks
Bank of America Securities analyst Jessica Reif Ehrlich contends against a clean break, asserting that Disney’s assets complement one another, with studio IP driving the parks while linear networks generate funds for investments in growth areas like streaming.
Ehrlich suggests harnessing the brand’s intrinsic value to explore new opportunities, highlighting ESPN’s $2 billion sports betting deal with Penn Entertainment Inc. as an example of untapped potential.
Yet Nathanson believes that the current corporate structure does not fully unlock the value within Disney’s assets and proposes the establishment of a new company combining Disney’s Parks, Experiences, and Products segment with Disney+ and studio IP, potentially commanding a premium valuation due to its iconic assets and robust revenue growth.
Reevaluating corporate structures is not unique to Disney; other legacy media giants, such as Paramount Global and Lionsgate, have contemplated similar routes. 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 chosen to divide its studio and Starz business, reflecting the broader shift toward the streaming-first era.
