Disney will begin the process of an ESPN and ABC spin-off in 2023: Wells Fargo

Wells Fargo expects big things for Disney (DIS) sports network ESPN in 2023.

In a new note published Tuesday, Wells Fargo analyst Steve Cahal outlined the company’s top predictions for the media business in 2023, and made a big call about ESPN’s future under Bob Iger at Disney.

“DIS will begin the spin-off of ESPN & ABC including the launch of ESPN on Live on Demand,” Cahal wrote. “Cost rationalization and balance sheet options are critical to achieving this outcome. The result is that DIS will remain better off.”

Whether or not Disney should consider spinning off the popular sports network has been a perennial point of discussion among investors for years, and it gained traction this year after Third Point’s Dan Loeb sent a letter to the company urging the creation of ESPN.

Loeb said ESPN would have more flexibility to pursue business initiatives, such as sports betting, if it was not part of Disney.

Newly returned Disney chairman Bob Iger will likely decide ESPN’s fate before the end of his two-year term in 2026, though former CEO Bob Chapek previously dropped the idea of ​​selling the sports network.

“If you have a vision of the future that the rest of the world doesn’t necessarily align with yet, you keep ESPN. You keep ESPN, and you have a whole bunch of general entertainment, family news, and unparalleled sports that an entertainment company can touch,” Chapek said. Deadline, adding that the company has received many inquiries from companies looking to buy.

Analysts remained divided on what Disney should ultimately do with ESPN.

“We’re very opposed to spinning off ESPN… This is the dumbest thing ever,” Jason Bazinet, managing director at Citi, told Yahoo Finance Live earlier.

Bazinet went on to explain that ESPN has the potential to be a much larger global company, especially if Disney chooses to leverage the Internet for distribution. He also noted that the network generates the bulk of Disney’s cash flow, which will eventually fund its direct-to-consumer pivot and help offset accelerating losses in streaming.

“What Disney is going through with a direct-to-consumer activity is very much like a cable company or a telecom company,” Bazinet said, emphasizing that DTC bridges the gap between consumer rights and sports rights. “They shouldn’t be separated from her.”

Mickey and Minnie pose for a photo with ESPN hosts after the Super Bowl preview show from Disney California Adventure airs in Anaheim on Thursday, February 10, 2022 (Photo by Leonard Ortiz/MediaNews Group/Orange County Register via Getty Images)

Investors are still eager to see some kind of turnaround in the company amid steep streaming losses and a plummeting share price. On Monday, Disney shares closed at their lowest level since March 2020 after disappointing box office numbers for the movie “Avatar: The Way of Water.”

In its most recent fiscal year, Disney’s total operating income for the linear network segment — which includes ESPN — was $8.52 billion. Losses for its direct-to-consumer unit, which includes Disney+, Hulu and ESPN+, totaled $4 billion for the year.

Everything is on the table

Tuesday’s forecast comes as industry watchers expect more media consolidation activity in 2023.

“It’s a very good inflection point,” John Christian, executive vice president of digital media supply chain at Qvest, the largest advisory firm focused on media and entertainment, told Yahoo Finance. “The game has changed. It used to be just subscribers at all costs…but now [investors] You need these services to be profitable. “

“We’re entering the second chapter of the streaming wars,” added Bart Spiegel, partner, global entertainment and media deals at PwC.

“Only time will tell, but I think everything is on the table to try to improve profitability and make the platforms more creative with their businesses in general,” Spiegel continued.

“Our forecasts for 2023 indicate that the media and cable sector is generally reacting to challenging times, both cyclical and structural. Hard times mean tough decisions,” noted Wells Fargo’s Cahal.

Even for the world’s leading sport.

Alexandra is the chief media and entertainment correspondent for Yahoo Finance. Follow her on Twitter aliecanal8193 and email it to alexandra.canal@yahoofinance.com

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