In a move that could potentially reshape the media landscape, Disney is considering the sale of some of its legacy businesses, including ABC and its owned local affiliates. Early discussions with Nexstar about the potential sale have been reported, although no deal is guaranteed at this point. While the sale price may not be record-breaking, it’s the symbolic gesture of divesting lower growth businesses that holds more weight for Disney and its shareholders. The entertainment giant’s motivation isn’t based on the monetary gain from the sale, but rather the signaling to investors that Disney is ready to move beyond its traditional media identity.

Disney, with a market capitalization of approximately $156 billion and a debt of about $45 billion, could benefit from selling off assets to reduce its leverage ratio and offset ongoing losses from its streaming businesses. Disney CEO, Bob Iger, has indicated that the sale of ABC and linear cable networks would send a strong message to the investment community that the era of traditional TV is over, marking the start of Disney’s next chapter. This move is seen as beneficial for the company’s stock, as it would allow Disney to offload some of its lower, negative-growth businesses to a more suitable operator.

Disney Contemplates Selling Legacy Media Businesses

Disney’s decision to potentially sell some of its legacy media assets, including ABC and its owned affiliates, is rousing investor interest. The entertainment giant is considering divesting these businesses, which have slower growth profiles, signaling a shift away from its traditional media image.

A New Chapter for Disney

Disney’s market capitalization stands at approximately $156 billion, with around $45 billion in debt. Selling assets could help lower its leverage ratio while also offsetting losses from its streaming businesses. However, the main rationale behind the potential sale, as stated by Disney CEO Bob Iger in a July interview with CNBC, is to signal to the investment community that the era of traditional TV is over and Disney is ready for its next chapter.

"Streaming is its future. It’s its strongest asset, next to the parks," said Steven Cahall, an analyst at Wells Fargo in a CNBC interview. Selling off the slower, negative-growth businesses would be good for the stock, he added.

Potential Buyers and Declining Values

Nexstar and media mogul Byron Allen have shown preliminary interest in acquiring ABC and its affiliates. Allen has made a preliminary offer of $10 billion for ABC and its affiliates, along with cable networks FX and National Geographic.

However, the value of broadcast and cable networks has significantly declined over the years. Cahall values ABC and Disney’s eight owned affiliate networks at about $4.5 billion, a far cry from the $19 billion Disney paid for Capital Cities/ABC in 1995. ESPN, another Disney asset, has a valuation of about $30 billion, though this is expected to decrease.

The Fate of ABC

Divesting ABC would be a bold statement from Disney, indicating its shift away from the broadcast cable world of content distribution. Disney has to weigh the pros and cons of losing ABC, especially since Iger has expressed interest in keeping the company in the sports broadcasting business.

"Selling ABC may trigger certain change-of-control provisions that force existing deals with pay TV operators or the leagues to be rewritten," warns the source.

A Path Forward

If Disney succeeds in selling ABC and this move is well-received by investors, it could spur other major legacy media companies to sell their declining assets. Disney’s decision may set a precedent for the industry.

"There’s a lot going on now at Disney, between ESPN and partnerships and divesting some of this stuff. Disney is suddenly feeling a little more catalyst-rich than it was recently," said Cahall.

Takeaways

Disney’s potential decision to divest legacy media businesses is a significant move, signaling the company’s transition from traditional media to a future-driven by streaming services. It’s a bold strategy that could reshape the media industry if other legacy companies follow suit. Only time will tell if this move will prove beneficial for Disney and set a new trend in the industry.