Hello! This is Wednesday’s Strategic Bites. We’re covering a requested topic from Pharma bro #1 (There are 3 on this sub list, but bro #1 is Ahmed’s #1 boy).

We’ve gotten feedback over the past few months on what you get out of these emails, and one of the main benefits is thinking through why a strategic move evolves the way it does.

So we’re going to think through Disney unraveling itself from ESPN and selling to another company.

Why is Disney selling a stake in ESPN?
Here are 8 thoughts

What are the signs? What are the implications?

Let’s thread a few big thoughts together and paint a picture. Ahmed and Pete talked this through and you’re getting 100% pure unfiltered thought (with a few revisions, ha).

Thought #1: Currently, the company is in the doghouse with shareholders. The last 24 months have been extremely volatile with 2 CEO changes, a reshuffling of staff, massive losses in streaming, and overall decreases in terrestrial assets (TV channels) due to cord cutting.

Thought #2: Bob Iger said there was going to be a re-arrangement of content across its services as well as ‘aggressive curating’ of shows, meaning they’re gonna double down on what works and gut what doesn’t.

Thought #3: Like we talked about a few weeks ago, Disney CEO stated that Hulu was essential to its service going forward, which just gave Comcast immense leverage over the price of its piece in Hulu (that option will be exercised early next year). Yikes.

Thought #4: So now you’re the CEO of this company. You have a massive acquisition cost coming up ($9B+, which is something like ~20% of Disney’s market cap). Naturally, you’re thinking, how can I shore up my business to do 2 things: manage shareholder expectations and find a lump sum of money somewhere to maybe not have anxiety about some massive debt? That’s right. I’d be looking to sell a piece of something.

Why ESPN?

Thought #5: Let’s focus on ESPN. Well, we’ve seen a ton of layoffs at ESPN, and some of the main guys have gotten extended. We’ve also heard that ESPN is going to become streaming-only down the road. What does this mean? Well if i’m trying to sell a business to a potential suitor, I’m doubling down on what works (Scott Van Pelt) and what doesn’t (Jeff Van Gundy and Mark Jackson).

Thought #6: Well…this streaming only thing. That’s the thing that’s nagging us. ESPN charges between $8-$9 dollar a subscriber over linear TV. They make between $5-$6 for ESPN+ (assuming no differentiated costs in these channels). So why go a streaming only route (eventually)? Well, the current picture is fine, but linear TV is (again) declining across the board as an industry. It has more to do with survival,

but maybe….

Thought #7: Maybe it also has to do with who they want to sell it to. Not another traditional media company. But a deep-pocketed, massive Tech company.

…But why ESPN?

Thought #8: ESPN is the self-sustaining shining start of sports (yucky alliteration).

Here are 3 things that make it a worthwhile asset:

• It’s unquestionably differentiated if it’s put in the streaming category (sports + other live content);

• A huge legacy AND digital brand;

• The best asset you could acquire if your M.O. is to get deep into live content as a streaming company

Who would they sell to?

Apple…probably (thanks Pharma Bro #1 for the tip. You’re Ahmed’s #1 boy).

It makes sense.

Apple has huge deals with MLB and MLS. The coverage isn’t bad. And if ESPN were a streaming only service with none of the terrestrial headaches/relationships, it could be a simple plug and play into Apple’s billions of active iOS devices since Disney would be looking for a skilled distribution partner. Not to mention, any acquisition of ESPN would be a drop in the bucket for Apple.

What AI made this week

Have a great week!

Ahmed and Peter