Disney CFO Answers A Wall Street Question “We Get A Lot”: Why Is The Company Sticking With Linear TV?

Reaffirming the company’s long-established strategy, Disney CFO Hugh Johnston told Wall Street analysts Wednesday on an earnings call there are no plans to spin off or sell linear TV networks.

The question has surfaced anew given the changing of the executive guard, with Josh D’Amaro succeeding Bob Iger as CEO earlier this year. Iger in 2023 made waves when he said linear networks “may not be core” assets, though he later walked back the comments, calling them a public “test” of strategic thinking.

The conference call with analysts followed Disney’s report of better-than-expected earnings results. Streaming gains by Disney+ and Hulu powered a big performance by the Entertainment division.

Rivals Comcast and Warner Bros. Discovery have made moves in recent months to rid their balance sheets of linear TV, which is experiencing secular decline due to cord-cutting. Stocks of companies seen as dependent on linear have taken a beating over the past few years. Privately held A+E Global Media, a joint venture of Disney and Hearst that controls cable networks like Lifetime and A&E, last summer hired a bank to help it explore strategic options, in part due to linear TV declines.

Comcast this year spun off almost all of NBCUniversal’s cable networks into a stand-alone company, Versant, while WBD announced plans to split its linear business from studios and streaming. The WBD split was superseded by Paramount’s pending $110 billion offer to take over the company. Paramount has indicated a willingness to continue operating linear networks, though it has seen marked deterioration of its own linear stable.

The linear question is “obviously one that we hear a lot, so I’m gonna try to be as clear as I can in the answer on this,” Johnston said. “We do understand there’s a lot of focus on linear entertainment assets, and ESPN.”

Networks, the exec continued, “are better thought of as brands with studios that produce content, like The Bear or Shōgun, and we monetize that content across multiple distribution platforms. Separating those monetization platforms into discrete businesses is highly complex and, in our view, unlikely to create incremental value for shareholders, especially given where linear networks are valued in today’s marketplace.”

Disney is also “managing a monetization transition of these brands, and we are actually far down that migration path,” Johnston added. “We’re generating more revenue at Disney Entertainment and streaming than in linear, more than double if we look at it in this most recent quarter. So, the linear earnings base is becoming smaller and smaller every quarter within our P&L. Finally, yes, linear revenues are declining, but Disney Entertainment as a segment is growing nicely.”

Sports is a “separate discussion,” the CFO argued. ESPN is “much earlier in its monetization transition, having just launched [its “unlimited” app offering] last year. However, when we look at the marketplace for streaming in our competitive set, Netflix, Prime Video, YouTube, Paramount Plus, all of them are increasing their position in live sports. Sports rights are expensive and can be dilutive without scale. But we have scale in our most important market, the U.S., and the biggest sports media brand in the world in ESPN. We view sports as a key part of our programming strategy, and ESPN as an important contributor to our distribution portfolio.”

Johnston conceded that the “economic transition” of ESPN remains a work in progress, but the company is confident about “leveraging it for our overall business.”