If Disney Sells Off TV, It Won’t Be Simple

What companies will be tempted by the trial balloon that Bob Iger floated above the media industry last week? That’s a billion-dollar question that’s been circulating through the media industry ever since Iger, CEO of the Walt Disney Co., indicated that the company is open to selling off much of its linear TV business and finding a strategic partner for ESPN.

While some longtime media executives expect that a private equity firm could swoop in and pick up all the channels and stations that Disney is putting on the table, others predict that selling off the assets in a piecemeal fashion to more than one buyer is a likely scenario. None of this is likely to come easily, for a variety of reasons. And when the dust settles, ABC affiliates probably will face the potential of even more onerous demands for reverse compensation to help the new owner make the economics work in its favor.

For some TV observers, it’s been a question of when, not if, the Walt Disney Co. would seriously consider selling off at least part of its linear TV business. As far back as a dozen years ago, Iger indicated in Disney management meetings that he didn’t consider the properties to be core to Disney’s business, and its stable of eight TV stations is the smallest of the Big Four broadcasting network groups.

On the one hand, the timing may seem less than ideal, given the lackluster upfront market and debilitating strikes by the Writers Guild of America and SAG-AFTRA. But in other regards, it makes a lot of sense.

“There are good reasons to leave the linear TV market now. With networks still generating positive cash flows, there should be private equity buyers,” says David Offenberg, associate professor, entertainment finance, at Loyola Marymount University. “If they wait too long to sell, the networks will have little ability to generate cash left and will struggle to sell them, just like WBD [Warner Bros. Discovery] with its RSNs [regional sports networks].”

Offenberg predicts that in 10-15 years, the linear network business will shrivel down to one dominate player. Right now, there are four: Disney, NBCUniversal, Paramount and WBD. His money is on NBCU as the last “man” standing.

“Typically, the one company that sticks around in the declining industry makes a ton of money because they develop a natural monopoly, and the same is likely to be true when talking about broadcast and cable networks,” Offenberg says. “There will be antitrust issues in the near term, but they will go away in the years to come as fewer and fewer consumers watch linear TV.”

When surveying the many media dynamics at play today, including the streaming wars, “I think Bob Iger looks at television as a limited growth [opportunity] because of the advertising drop and the drop in the number of subscribers,” says Larry Patrick, founder of the brokerage and investment banking firm Patrick Communications. Because of the cable subscriber losses, broadcasters are intent on increasing retransmission fee rates to maximize that revenue stream.

“You see that going on right now between Nexstar and DirecTV,” Patrick says. “That cord cutting is going to continue, and you see DirecTV and others digging in their heels and fighting much harder not to give the kind of increases that the broadcasters would like to enjoy.”

But not everyone sees linear TV through the same lens as Iger. “When I look at TV, it’s still a great business. It still has great margins. You can still make a nice amount of money on an annual basis and compounded over a number of years,” Patrick says.

“ABC is a very valuable property. They’re going to have the Super Bowl coming up in ’26 and ’30, in addition to some of the Monday Night Football games and playoff games,” says Justin Nielson, principal analyst at S&P Global Market Intelligence.

Those are all good reasons why a private equity firm would be attracted to the properties, in Patrick’s view. “You have to look at a couple of things. One is, who has been driving some of the big deals in recent years? That’s private equity.”

He says the idea that broadcasting is a closed loop, and the only people who can buy TV stations are other broadcast companies, doesn’t make sense. “When you think about the ABC properties, the ABC network, you see that they are almost too big for traditional broadcasters to buy and finance at this point,” he says.

Private equity firms like Apollo Global Management, Blackrock, Blackstone and Fortress can put together tens of billions of dollars to snap up assets, Patrick notes. If they don’t have an executive on staff that is well schooled in managing media properties, they can simply hire them.

However, Nielson expects the assets will be sold off in pieces. He reasons that someone interested in the ABC network and O&Os might not find Disney’s stakes in linear cable channels as compelling, and vice versa. “It makes the most sense, operationally and strategically, for ABC and the stations to go to a legacy broadcaster, as opposed to a new entrant or a tech entity,” he says.

But the situation for broadcasters is complicated. Sources note that Gray Television is highly leveraged and is more interested in paying down debt than buying anything quite so large. Plus, it’s close to the FCC’s station ownership limit. Nexstar Media Group and Tegna face similar market cap issues. Sinclair is also very large and is busy trying to extricate itself from its regional sports network “debacle,” as one source puts it.

Hearst Television certainly could do something. There’s a natural synergy there, because Hearst jointly owns A&E Networks and ESPN with Disney, and it has ABC affiliates. But it has historically been reluctant to go deep in debt and its purchases have been done very selectively — such as its recent $220.5 million acquisition of WBBH Ft. Myers, Fla., sources point out. Then there’s Allen Media Group, which has shown interest in making a big media play and could potentially come up with the financing.

On top of all those reasons, broadcasting groups may be skittish for another reason. “In the political environment that we have right now, any type of large media deal is going to go through additional scrutiny. That would be the one reason that some of these broadcasters might be hesitant to make that push, to make a deal,” Nielson says.

The collapse of Standard General’s $8.6 billion deal to buy Tegna, with funding from Apollo, looms large in everyone’s mind. The FCC effectively killed the deal in May after an unusually long period of scrutiny, and when Standard General’s agreements for very attractive financing expired.

Patrick believes there’s still reason for optimism. “Tegna had some hair on it because of the involvement of Apollo through the back door to get Standard General into play. And I think that sort of rubbed the Chairwoman [Jessica Rosenworcel] and some of the commissioners badly,” he says. “I think if it’s a pure equity firm, and it’s a pure deal” it might pass FCC muster.