Disney suggests selling TV assets. But 'who wants to buy a linear TV business?'

Updated Fri, Jul 14, 2023, 9:58 AM 4 min read

"Every media company is facing cord-cutting, shifts of television advertising to connected TVs and other platforms," Rich Greenfield, media and technology analyst at LightShed Partners, told Yahoo Finance Live. "The linear TV business is just under a lot of pressure, and investors are already asking me, 'Well, who are they selling it to?' 'Who wants to buy a linear TV business?'"

Iger, who made the comments in a lengthy interview with CNBC on Thursday morning, a day after the company announced it will be extending his contract through 2026, admitted the current distribution model is "definitely broken."

He explained Disney's linear TV assets, which include broadcast network ABC and cable channels FX, Freeform, and National Geographic, "may not be core" to its strategy any longer.

"That's what's really challenging," Greenfield noted. "It's one thing to say you want to get rid of ABC or get rid of FX. But who exactly is the buyer of those businesses? I don't have a great answer for that."

Photo by: Dennis Van Tine/STAR MAX/IPx3/13/17Bob Iger at the premiere of "Beauty And The Beast" in New York City. · Star Max/IPx

Bank of America analyst Jessica Reif Ehrlich — who has a Buy rating on the stock and a $135 price target — added there are still longer-term questions regarding a sale, although she is encouraged by Disney's "best in class" brands and "very strong" executive team.

"While it is unclear what partners/structure these assets will ultimately find as Disney reassembles its business mix, it remains to be seen what the implications will be of these transformative actions on the longer-term earnings power and growth trajectory," she wrote in a note on Friday.

Other industry watchers said a possible asset sale is likely necessary to protect the business' future— but only with the right buyer.

"We agree that asset sales are a good idea, but our best advice would be to sell all (or all the content assets) of DIS to AAPL, AMZN, or another company that never needs to make money from creating content," Needham analyst Laura Martin wrote in a note to clients on Friday morning. "If they don't sell, DIS will be competing against those companies in an industry with deteriorating economics (because they never need to make money from content), we believe."

Disney CEO Bob Iger said Thursday he would take an "expansive" look at the entertainment giant's traditional TV assets, signaling the potential for strategic options that could include a sale. (Randy Holmes via Getty Images) · Randy Holmes via Getty Images

Martin added the timing of Iger's announcement was likely a strategic one given the executive's attendance at the Allen & Company Sun Valley conference. The conference has historically yielded notable M&A media deals, including Comcast and NBCUniversal's merger in 2009 and Jeff Bezos's acquisition of the Washington Post in 2013.

"Hanging a 'for sale' sign on assets owned by DIS today is clever from a timing point of view because a key goal of the Allen & Company Sun Valley conference is M&A. The media business needs to consolidate, and Iger's announcement puts every CEO at the conference on notice that if they want to purchase any DIS assets, now is the time to pull Iger aside for a discussion," Martin wrote.

Wells Fargo also voiced optimism following Iger's comments. Analyst Steven Cahall, who reiterated his Overweight rating and $147 price target, wrote on Thursday that divesting non-core assets would bring in cash and improve Disney's earnings growth.

"As strong (but wrong) DIS bulls we like the potential action of divesting non-core Linear assets, which would improve the growth and multiple," he said. "Bigger picture is DIS seems to be taking increasingly bold actions. ...Linear cash flows are in marked decline, but there's a price for everything."

Disney stock is down about 2% on the year and has fallen nearly 5% compared to this point last year.