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Disney will spin off ESPN in 2023, allowing it to stream directly to sports fans, analysts predict


Earlier this year, Walt Disney Co. Chief Executive Bob Chapek fought off an activist investor seeking a spinoff of ESPN and other TV properties, but Wells Fargo analysts believe a change at the top will lead Disney to make that move in 2023.

“We think Bob Iger is returning to Disney to make big changes,” the analysts wrote Tuesday about Disney’s

former CEO, who was reinstalled in his old position last month. “Spinning ESPN/ABC is the best path forward and we see it as a reasonably probable late-’23 event.”

Activist investor Dan Loeb’s Third Point LLC bought a significant stake in Disney stock earlier this year and immediately agitated for change, including a potential spinoff of ESPN. Loeb wrote then that the move would “attract shareholders seeking the respective qualities of each company, allowing the Disney parent multiple to expand as its earnings growth rate increases and the remaining business is no longer haunted by the specter of cord-cutting.”

Chapek was able to fend off that move, adding a former Facebook

executive to the Disney board as part of a standstill agreement with Third Point. But after a disappointing fiscal fourth-quarter earnings report and annual forecast in November, Chapek was replaced by Iger, who was also his predecessor.

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Iger has also fought off calls to spin off ESPN, though he has suggested that other moves could be in the offing. One that would be seismic for the cable bundle would be offering ESPN as a full stand-alone streaming option; while Disney offers an ESPN+ streaming service, it does not include live access to events shown on ESPN’s cable networks or on ABC.

The Wells Fargo analysts, though, predicted that “a spun ESPN/ABC would take the step as its path to the future, and to improve its position when negotiating with leagues for future rights.”

They continued: “A key reason for ESPN/ABC to spin from Disney is to give it the operational flexibility to move into [direct-to-consumer]. ESPN stand-alone can focus on ESPN’s future of how to monetize sports, unencumbered by the
bigger pictures facing Disney like how to position streaming content, bundle services like Hulu and Disney+, managing Linear Networks OIBDA [operating income before depreciation and amortization] to keep the balance sheet stronger into the Hulu put, etc. We think some of [Disney’s] resistance to take ESPN fully a la carte up to now is these other issues.”

Iger has not previously displayed an appetite to spin off ESPN from the Disney monolith, but he has said that selling ESPN’s total package directly to consumers is probable sometime in the future.

“We don’t have plans right now to take ESPN as it is currently distributed on both new and traditional distributors and go direct with it. Will that eventually happen? I think probably,” he said in a May 2017 conference call in response to an analyst’s question.

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ESPN has helped to maintain the cable bundle, as it is the sole way to gain access to many live sports events. Disney profits from the arrangement not just because of the carriage fees that cable providers such as Comcast Corp.

and AT&T Inc.

pay to host the channels on their services, but also because it helps ensure that Disney’s portfolio of other cable channels remains on the bundles.

Disney stock gained 1.5% in Tuesday trading, bouncing back from a decline of nearly 5% on Monday, as investors reacted to lower-than-expected box-office results for “Avatar: The Way of Water.” Shares are on the way to their worst year since 1974, according to FactSet data, with a 44.1% year-to-date decline easily outpacing a 19.9% drop for the S&P 500

and a 9.9% decline for the Dow Jones Industrial Average
which counts Disney as one of its 30 components.


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