Insights from Former Disney Exec: ESPN, Streaming, and TV Decline

Table of Contents:

1. Introduction
2. The Challenges in the Media Industry
3. The Impact of Cord Cutting Trends
4. The Role of Deal-making in the Industry
5. The Maturing of the Streaming Industry
6. The Consolidation Process
7. Buyers for Media Assets
8. The Role of Big Tech in the Media Industry
9. Cultural Mismatches between Tech and Hollywood
10. The Future of Disney and Media Succession

The Future of the Media Industry

The media industry is currently facing numerous challenges, with media stocks under pressure and cord-cutting trends on the rise. These challenges have led to increased deal-making in the industry as companies strive to adapt and survive. The streaming industry, which was once a vibrant growth sector, has also faced challenges in recent times. As the industry matures, adding subscribers becomes increasingly difficult, as most people who want streaming services are already subscribed. This slowdown in growth has led to consolidation as companies compete and spend large amounts of money on multiple overlapping infrastructures.

One of the questions that arise is, who are the buyers for these types of media assets? Additionally, where does big tech fit into this narrative? While there have been some notable acquisitions, such as Amazon's purchase of MGM, the presence of big tech companies in the media M&A space has been relatively limited. This can be attributed to the differences in culture between the tech and Hollywood industries. The cultural mismatches make potential buyers nervous about the compatibility of tech-focused companies with the storytelling and creativity that the Hollywood industry represents.

Furthermore, big tech companies like Apple TV+ and Google already have access to programming through partnerships with independent content producers. This arms-length approach allows them to acquire content for their streaming services without entering into full-scale mergers or acquisitions. While a combination of tech and creative companies is not impossible, it is not a straightforward or guaranteed occurrence. The clash between cultures and the availability of alternative content sources provide sufficient reasons for caution.

When discussing the future of the media industry, the role of Disney cannot be overlooked. As a prominent player in the industry, Disney has recently faced challenges, such as a stock trading near record lows and an activist investor fight with Nelson Peltz. Despite these difficulties, Bob Iger, Disney's former CEO, remains a crucial figure advising the company in a strategic capacity.

Bob Iger is focused on ensuring the success of ESPN, a company he strongly believes in. To position ESPN for the future, Bob Iger is contemplating transitioning it into an over-the-top (OTT) streaming service, separate from the traditional linear TV bundle. This transition poses interesting questions about the cost to consumers. While analysts estimate a price point of around $30 a month, some argue that consumers are willing to pay higher prices for sports content.

Sports programming has historically been a significant contributor to the cost of pay TV bundles, with people unknowingly paying a substantial amount for sports they may not even watch. The flexibility offered by OTT streaming services allows consumers to choose whether or not to include sports in their subscription. Therefore, a price point of $30 a month, or even higher, seems reasonable if it provides access to a comprehensive suite of sports content.

The transition of ESPN to a streaming service also raises questions about potential partners who could help facilitate this shift. Although Disney's conversations with major leagues like the NFL and MLB have not been publicized, there is speculation about partnerships with digital and telecommunications companies. Disney is seeking content and distribution partners to enhance its offering and create multiple tiers of service.

While the future of linear TV remains uncertain, the appeal of owning a declining linear business is not readily apparent. Linear networks have historically been highly profitable, sometimes with profit margins reaching 30-40%. Although streaming services like Netflix are gaining profitability, it is unlikely that streaming will achieve the same level of profitability as traditional broadcasting and cable. However, streaming services can still be lucrative, especially if they have a clear strategic vision and can exploit powerful brands and franchises effectively.

The succession planning at Disney has been a topic of discussion. Finding a permanent CEO for the company has proven challenging in the past. However, the current situation presents an opportunity for Bob Iger to shape the company's future and identify potential successors who can lead a different Disney. The future Disney could have a majority ownership of ESPN, operating as a streaming service alongside other content partnerships. Linear channels like A&E and Disney Channel may be part of joint ventures, allowing Disney to focus on its core assets: Disney, Marvel, Star Wars, and Pixar.

Success in the media industry requires a disciplined and strategic approach. Bob Iger, with his range of capabilities, is well-equipped to navigate the challenges facing Disney. Long-term decisions must be based on a clear strategic vision, which will ultimately drive shareholder value. While short-term problems may impact morale and stock prices, reducing uncertainty and articulating a compelling strategic vision will help Disney succeed in the future.

In conclusion, despite the challenges in the media industry, companies like Disney have a bright future ahead. With the right strategic vision, strong core assets, and effective utilization of business platforms, Disney can continue to thrive. The future of the media industry may see further consolidation, with strategic and private equity buyers seeking opportunities to expand their influence. As the industry evolves, it will be crucial for companies to adapt and embrace new technologies and business models to remain relevant and profitable.

Highlights:

• The media industry is facing challenges due to underperforming stocks and cord-cutting trends.
• Streaming industry growth has slowed, leading to consolidation as companies compete and spend on multiple infrastructures.
• The clash of cultures between tech and Hollywood industries hampers potential M&A deals.
• Big tech companies have access to independent content producers, reducing the need for full-scale acquisitions.
• Disney's future includes the transition of ESPN to an OTT streaming service and a focus on its core assets: Disney, Marvel, Star Wars, and Pixar.
• Although linear TV faces uncertainty, streaming services can be profitable with compelling strategic visions and powerful content.
• Finding a permanent CEO and preparing for succession is an ongoing challenge for Disney.
• Long-term decisions must be driven by a clear strategic vision to create shareholder value.
• Strategic partnerships and consolidation will likely shape the future of the media industry.
• To thrive, companies must adapt to changing technologies and business models.

FAQ:

Q: Are big tech companies acquiring media assets in the industry?
A: While big tech companies have made some acquisitions, the clash of cultures between tech and Hollywood industries has hindered more significant M&A activity.

Q: What is the future of linear TV in the media industry?
A: Linear TV is experiencing uncertainty due to the rise of streaming services. However, the profitability of linear networks and their potential place within joint ventures or alternate business models remains to be seen.

Q: Is Disney considering partnerships with major sports leagues for its streaming services?
A: Disney's discussions with major sports leagues have not been publicly disclosed. However, partnerships with leagues like the NFL and MLB could enhance Disney's streaming offerings.

Q: What is the role of Bob Iger in shaping the future of Disney?
A: Bob Iger, as a strategic advisor, is focused on strengthening ESPN and transitioning it into an over-the-top streaming service. He is instrumental in driving Disney's strategic vision for the coming years.

Q: How can media companies succeed in an evolving industry?
A: Media companies must adapt to new technologies and business models, leverage strong core assets and brands, and have a clear strategic vision to remain relevant and profitable in a rapidly changing industry.