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Disney Could Sell ESPN, Due To Massive Subscriber Loss

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Want to know how bad things have become at ESPN? The ratings nosedive has caused industry watchers and deal makers to openly speculate whether or not Disney should sell ESPN.

Using the backdrop of Disney’s plummeting shares, a drop in value in no way helped by ESPN losing nine million subscribers in the last three years, Bloomberg’s Tara Lachapelle describes a possible move that Disney CEO Bob Iger could make to reverse the company’s sagging fortunes.

That move, would entail Disney cutting the cord on ESPN: “Back in May, I wrote that a breakup of Disney may be his answer. Separating ESPN (or the media networks division altogether) could not only help lift the company’s sagging valuation, but also make it a little easier to find a successor. Recall that Tom Staggs, the Magic Kingdom’s heir apparent, abruptly stepped down as chief operating officer earlier this year. And former CFO Jay Rasulo, the other possible pick, quit in 2015.”

Lachapelle then makes her case, citing how much of a disaster ESPN has become: “…ESPN has continued to weigh on Disney’s results as the NFL struggles to keep viewers. A Nielsen report showed that ESPN, ESPN 2 and ESPNU lost more than 600,000 subscribers from October to November. ESPN’s NFL ratings have suffered a 17 percent decline this season, according to Nielsen data as of last week. Separately, Disney’s ABC network is faring the worst among the top broadcasters, with ratings down 11 percent for the season as of Nov. 9 versus a year ago.”

Lachapelle is not alone in talking about Disney getting rid of ESPN: “Last month, billionaire John Malone — the dealmaker of all media dealmakers — speculated that Disney may spin off or sell ESPN, along with maybe ABC. He then went so far as to say Apple Inc. may be interested in merging with Disney after the split. The Edge, which analyzes spinoffs, has written about a Disney breakup, too, noting that the media networks and the rest of Disney “lack sufficient synergies and have vastly different outlooks and business model challenges.”

Some market analysts believe ESPN has kneecapped the entire media networks division at Disney: “Now, RBC Capital Markets analyst Steven Cahall is jumping on the bandwagon. In a report Monday, Cahall wrote that ESPN “has almost single-handedly de-rated Disney by about 3.5 to 4 turns” of its Ebitda multiple. After the stock got a small pop Monday, Disney was valued at 10.7 times the Ebitda it generated in the past 12 months. That’s down from a multiple of nearly 14 about a year ago, according to data compiled by Bloomberg.”

Its well worth your time to read the entire article, however, you get the message: ESPN is the dilapidated foreclosure with the colony of cats living under it, and the HOA has taken notice. Still, getting rid of ESPN seems a bit drastic, and they’ve gone through tough times before, so why sell now?

First, ESPN has cost Disney hundreds of millions of dollars and there’s no end in sight. Companies normally frown upon subsidiaries that hemorrhage money. Also, perhaps more importantly, Disney CEO Bob Iger’s contract is up in 2018, and it’s vitally important for Disney’s shareholders to stop the bleeding, whether to help convince Iger to stay on or to make the Disney CEO gig more attractive to his eventual replacement. From Iger’s perspective, if he wants to stay at Disney, cutting ESPN’s dead weight and making his shareholders more money is probably the smart move.

Either way, ESPN’s decision to give voice to the full-throated fury of their radical leftist personalities turned into a decision that not only cost them a few bad Nielsen ratings books, but might also cost them their company.

Follow Dylan Gwinn on Twitter: @themightygwinn


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