The Bttr [View]: Turmoil in the House of Mouse

In this article, we analyse Disney's current challenges, possible strategic scenarios, and the implications for the century-old company.

The Story So Far

Disney is facing mounting pressure on multiple fronts. CEO Bob Iger recently hinted at potential sales of company assets, igniting much speculation but little clarity on his intentions. With both its lucrative linear TV business and money-losing streaming investments under pressure, Disney's future strategic direction remains uncertain.

Iger stated that Disney's linear TV assets like ABC and FX "may not be core" to the company's future. This prompted confusion, given these networks still generate sizeable profits, accounting for 43% of Disney's?operating income in H1 2023. Iger aims to pivot Disney toward streaming, but thus far, streaming has been deeply unprofitable for Disney and the entire industry. Disney+ saw initial growth, but losses ballooned to $4B last year. Growth has since stalled. ESPN faces similar challenges transitioning its cable-dependent model to streaming.

The Current Situation

Disney faces financial constraints on multiple fronts. Its balance sheet carries $49B of debt, and in 2024, Disney must acquire Comcast's 33% stake in Hulu, which could cost at least $9B.

On the content front, oversaturation seems to have reduced quality. Disney plans to slow Marvel and Star Wars output to focus on quality over quantity, risking further streaming subscriber declines. Adding to Disney's headaches is an ongoing strike by the WGA and SAG-AFTRA over streaming residuals. Iger harshly criticised the talent unions, worrying workers but aiming to reassure Wall Street amid asset sale speculation.

What Could Happen Next?

Iger's opaque comments may signal he is considering significant asset sales. Returning as CEO in 2022, he seems focused on a legacy-capping deal before retiring. The sale of Disney's entertainment assets has been widely speculated.

Best-Case Scenario:?Disney strikes a deal to sell its entertainment IP and streaming tech assets, most likely to Apple, raising substantial capital. Linear TV assets are spun off or operated independently. Apple is a natural partner, given its need for quality content and franchise IP to compete in streaming.

Worst-Case:?Sweeping selloff of TV assets accelerates streaming losses, and Hulu acquisition strains finances further. Subscriber growth stalls. Disney becomes weakened on all fronts.

Most Likely Scenario:?Although challenging, Disney opts for measured asset sales to optimise portfolio and raise capital. Resources slowly shift from linear TV to streaming over 5-10 years. Streaming achieves profitability while linear TV provides cash flow in the interim. Disney onboards strategic partners to help ESPN transition carefully to direct-to-consumer.

While Disney will continue shifting resources to streaming, a major TV selloff is improbable. Minor asset sales may occur but won't fundamentally transform Disney.

The Bottom Line

Disney faces deep business challenges but still has the strengths to navigate this transitional period. With the right balance of patience and boldness, Disney can shift toward streaming while preserving the profits of linear TV.

Iger likely wants to end his storied career on a high note. But major acquisitions and sales are fraught with risk at this uncertain juncture. Smaller selective deals may be wiser.

The path forward is complex, but Disney's array of brands and franchises remains unrivalled. With wise stewardship, the House of the Mouse can regain its magic touch. But hasty drastic actions could also squander Disney's strengths. Iger has one last chance to cement a prosperous legacy.

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