Yahoo Finance Disney holds firm on ESPN as analyst suggests company could sell stake in network
On Wednesday, Disney (DIS) CEO Bob Iger reiterated on a call with investors ESPN won't be separated from Disney. At least not yet.
"ESPN is a differentiator for this company, is the best sports brand and television, is one of the best sports brand in sports. It continues to create real value for us," Iger said during the company's quarterly earnings call on Wednesday.
"[ESPN] is going through some obviously challenging times because of what’s happened in linear programming. But the brand of ESPN is very healthy, and the programming of ESPN is very healthy," Iger added. "We just have to figure out how to monetize it in a disrupting and continuing disrupting world. That’s it."
Industry watchers have long questioned the murky future of ESPN and whether or not Disney should consider spinning off the popular sports network — a suggestion previously made by Third Point's Dan Loeb.
Loeb argued ESPN would have greater flexibility to pursue business initiatives, such as sports betting, if it were not part of Disney.
Wall Street analysts remain split with some encouraging a spin-off to aid cost rationalization and balance sheet options, while others disapprove of the move given ESPN's cash flow generation. In its most recent fiscal year, Disney's operating income for its Linear Networks segment — which includes ESPN — totaled $8.52 billion.
In a note to clients on Thursday, Needham's Laura Martin suggesting the company could eventually sell a stake in the sports brand — rather than commit to a full spin-off.
"We wonder if they will sell a 10%-15% interest in ESPN," Martin.
Disney, in an effort to slash $5.5 billion worth of costs, plans to lay off 7,000 workers and restructure the organization into three core business segments with ESPN as its own standalone unit.
"For the first time, investors will see clean ESPN stand-alone revenue and earnings. [Management] made clear this is not a pre-cursor to a spin-off, but it could provide a window to an eventual move to OTT, when the time is right," Macquarie analyst Tim Nollen wrote in a note to clients on Thursday.
In addition to its ESPN business, Disney Entertainment will include the company's full portfolio of entertainment media and content businesses globally, including streaming, while Disney Parks, Experiences and Products will report results as a standalone unit.
Disney reported quarterly results after the bell on Wednesday that showed a beat on both the top and bottom lines as demand for the company's theme parks soared during the holiday period.
As expected, Disney+ subscribers showed a slight dip in the first quarter due to the absence of the Indian Premier League cricket tournament on its Indian brand, Disney+ Hotstar.
Streaming losses narrowed to $1.1 billion in Q1 against a loss of $1.5 billion in the fourth quarter — ahead of the company's previous guidance as Disney's ad-supported tier and recent price increases helped pare losses.
Wednesday's report served as the first since CEO Bob Iger's return to the company in November.
Alexandra is a Senior Entertainment and Media Reporter at Yahoo Finance. Follow her on Twitter @alliecanal8193 and email her at alexandra.canal@yahoofinance.com
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