Scroll down for Netflix news. Disney is seriously wounded.
Bob Iger Shifts From Building an Empire to a Disney Yard Sale
Netflix just had its best month in years and Disney is looking to sell its TV assets. What does that mean for the future of Hollywood?
Good afternoon from New York, and thanks to Thomas Buckley for the help with a packed newsletter.
While we will get to the major Disney news in a minute, let’s look ahead to a big week for Netflix and the entire entertainment business. The worldwide leader in streaming TV will report second-quarter financial results on July 19, and expectations are high. Shares of Netflix are up more than 90% since the market bottomed out in October, and the company is the 11th best stock in the S&P Index since then.
Investors and analysts are optimistic about the company’s advertising business and its crackdown on password sharing. New data from Antenna underscore why:
June was Netflix’s best quarter of domestic growth in years. About 3.5 million people signed up for Netflix in the US last month, an increase of more than 100% over its recent averages. Netflix accounted for one-quarter of all new domestic streaming sign-ups last month, at least among the services measured by Antenna.
This doesn’t mean Netflix added 3.5 million customers in the US. (That would be shocking.) Those are gross additions. Lots of people also canceled their Netflix accounts. But people are signing up a lot faster than they are canceling. That is good news for a company that hasn’t added customers at home in two years.
Netflix has cautioned that the password crackdown won’t boost its customer base until the second half of this year, but the data suggest that it has already prompted millions more people to start paying.
As a reminder, Netflix co-CEO Ted Sarandos is one of several moguls and celebrities speaking at the inaugural Screentime conference in the fall. You can buy a ticket a here.
Bob Iger shifts from building an empire to a Disney yard saleBob Iger built Disney into the world’s most powerful entertainment company by acquiring Pixar, Marvel and Lucasfilm. Now he’s looking to downsize.
Iger put roughly a third of the company up for sale this week, declaring Disney’s linear TV assets noncore. That includes TV networks ABC, FX and Freeform. He also said Disney is looking for a strategic partner for ESPN — though he’s not willing to sell the whole thing — and the company is already looking to sell or restructure its TV and streaming business in India.
It’s a stunning if inevitable turn of events for an executive who spent so much of his career working in TV, and for a company that relied on cable networks for the majority of its profit. Before the pandemic, Disney’s media networks generated 35%, or $24.8 billion, of company revenue and more than 50%, or $7.5 billion, of its operating income.
Yet the accelerating decline of cable TV has limited Iger’s options. He thought he’d solved this problem with Disney+ and Hulu, his two mass-market streaming services. But his streaming business is expected to register a loss of about $800 million in the company’s just-ended third quarter.
Management chased streaming subscribers at unsustainably low prices to goose the launch of Disney+ in 2019 and is now seeking to raise prices without alienating customers. (Disney+ lost 4 million subscribers last quarter.)
Iger put up a for-sale sign during an interview with CNBC in Sun Valley, Idaho, home to an annual summit of the media and tech elite organized by the investment bank Allen & Co. The conference has long served as an incubator for some of the media industry’s most high-profile deals — and a source of endless photos of executives walking in Patagonia vests.
It’s not yet clear how serious Iger is about selling entire TV networks. ABC, for example, is key to retaining NBA rights. FX has been a key supplier of programming to Hulu, which Iger plans to keep and fold into Disney+.
Yet Iger’s CNBC interview was unmistakably a distress signal. Disney is contractually obligated to buy Comcast Corp.’s one-third stake in Hulu in a deal that would value the business at least at $27.5 billion. It’s also wrestling with a colossal debt pile stemming from its $71.3 billion acquisition of 21st Century Fox in 2019.
A sale of the TV business could fetch around $8 billion, according to Wells Fargo analyst Steve Cahall — which would largely offset the cost of acquiring the piece of Hulu it doesn't yet own. Most of the potential suitors for linear TV networks are financial entities, like private equity firms, that would milk them for cash as they decline into obscurity.
The list of interested parties in ESPN is longer, and could include tech giants like Apple, as well as sports companies like Fanatics. The streaming side of the sports giant, ESPN+, remains more of a niche business. But Disney continues to signal it will offer all of ESPN outside of the cable bundle in the near future.
Iger came back to Disney last November a conquering hero eager to rescue the company from the era of Bob Chapek (his successor and predecessor). He said he’d only stick around for two years, a deadline few took seriously given Iger’s inability to relinquish control during his first stint as CEO.
After receiving a two-year contract extension this past week, Iger has three more years to clean up a big mess that also includes a slowdown in the company’s theme-park business, a series of misses for the company’s film division and the strike by Hollywood actors and writers against all of the media companies.
Rumors have long swirled that Iger will end up selling all of Disney to Apple. It’s still hard to imagine Iger selling Disney to anyone. He was always a builder — not a seller. But Bob the builder is doing a lot more cutting this time around.
Iger’s comments should spook his peers. If a diversified company like Disney is bailing on its cable networks, what does that mean for companies like Paramount Global and Warner Bros Discovery Inc.? They still make almost all of their profit from networks that are shrinking.
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Bob Iger Shifts From Building an Empire to a Disney Yard Sale - Bloomberg |
