Shares of the Walt Disney Co. (NYSE: DIS) finished higher the week ended September 15 on reports that it was in discussions to sell ABC and other broadcast channels.
Bloomberg reported that Disney was talking with Nextstar Media Group Inc. (NASDAQ: NXST), but the House of Mouse has not confirmed those reports.
In fact, the company took the step of issuing a statement to quell any rumors, or perhaps a premature stock rally.
“While we are open to considering a variety of strategic options for our linear businesses, at this time The Walt Disney Company has made no decision with respect to the divestiture of ABC or any other property and any report to that effect is unfounded,” the statement read.
Nextstar also rallied on reports of the discussions, finishing the week 13.52% higher. However, its shares, like Disney’s, were selling off on September 18 and 19 as investor hopes were dashed by Disney’s denial of the report.
Patched Up Dispute With Charter
Disney has had a tough go of it lately. It recently patched up a kerfuffle with Charter Communications Inc. (NASDAQ: CHTR) over pricing for Disney channels in pay-TV services, among other disputes. For a time, Disney removed all its primary content channels, including ESPN, from the cable provider. The removal occurred just at the start of the college football season, not exactly generating a lot of goodwill and sympathy for Disney.
Disney eventually said it would restore ESPN and other streaming services to the Charter bundle, which cheered investors in various other broadcast and cable stocks. It’s true that the number of cable subscribers is declining as more consumers turn to streaming, but if popular Disney channels are removed from cable bundles, that could hasten the demise of the industry.
The two pieces of news from Disney sent other media stocks higher, but many have since pulled back.
Warner Bros. Discovery Inc. (NASDAQ: WBD), Paramount Global (NASDAQ: PARA) and broadcasting giant Sinclair Inc. (NASDAQ: SBGI) were among stocks getting a bounce.
So what’s in it for these companies? Warner Bros. Discovery is a supplier of programming to broadcasting and cable networks. Paramount Global owns the CBS TV network, as well as film and TV production assets.
Sinclair, which isn’t well known to the general public, owns 294 TV stations that run local and regional news programs. Many consumers access those channels via traditional cable TV bundles.
New Life For Beleaguered TV & Cable Industries?
Disney’s deal with Charter, and to a lesser extent its moves to sell TV assets, could bode well for Warner Bros. Discovery and Paramount, which produce content. It could also be good for Paramount’s CBS network, as well as Sinclair’s TV stations, as it means new life has been breathed into the entire industry, at least for the foreseeable future.
One significant issue Disney is facing: Has the company simply become too big? Talk of a Disney breakup has been circulating for months, and even CEO Bob Iger hinted that management has been considering splitting the company into two businesses.
One would constitute the famous branded assets, potentially including theme parks, movie studios and the Disney+ streaming channel. The other could include the company’s extensive portfolio of broadcast and cable networks that aren’t linked so closely to the iconic Disney brand.
If the price move following the Nextstar report is any indication, a split up could unlock shareholder value.
Disney shares are down 21.46% in the past year, and earnings declined in the past four quarters. Revenue growth has slowed, although some of that is due to tough comparisons versus post-pandemic theme park reopenings.
You can look at the Walt Disney chart and see the downward share-price trend.
Byron Allen to the Rescue?
One way to stop the bleeding could be with a sale of the linear broadcast assets, which some analysts believe don’t have much room to run when it comes to profitability.
While the Nextstar rumors have been scotched, at least for the moment, the broadcast industry rumor mill says media billionaire Byron Allen has launched a $10 billion for the ABC network, and other Disney assets including National Geographic and FX. Allen owns cable assets including the Weather Channel and Comedy TV.
There’s clearly a change in the air for Disney. While it’s too early to say for sure how an asset sale would go, or if it will happen at all, it has potential to send shares of a smaller, more streamlined company higher.
