Disney Spinning Off ESPN Remains An Option, But Unlikely

Disney CEO Bob Iger is looking for new ways to jumpstart ESPN because the rate of U.S. cable cancellations has accelerated. In years past, ESPN could still generate revenue growth by increasing programming fees for pay TV distributors, such as Comcast, Charter and DirecTV.

That dynamic no longer exists, reports CNBC. As ESPN revenue declines, it will become a larger anchor on Disney’s earnings. That has prompted Iger to explore different strategic alternatives.

Bob Iger

Iger told CNBC’s David Faber last month he has had become more confident about when ESPN will launch a direct-to-consumer product. ESPN’s best programming is still exclusive to the linear cable TV bundle.  When ESPN does decide to offer an unbundled subscription service, it will likely cause even more people to cancel pay TV. That’s why ESPN has waited so long to go direct to consumer.

Iger declined last month to say when he planned to offer a direct-to-consumer ESPN. It likely won’t be in 2023 or 2024, according to people familiar with the matter.

Discussions with the leagues Iger wants to find minority partners to take equity stakes in ESPN. The sports network has held early talks with the National Football League, Major League Baseball, The National Hockey League and the National Basketball Association on the concept.

Selling a part of ESPN to professional sports leagues would be unprecedented. The leagues are focused on transitioning their own products to a streaming-dominated landscape. Taking a stake in ESPN and having the network’s expertise in building an all-sports subscription service could help the leagues create a unified product and navigate the new economics outside of the traditional TV bundle.

If ESPN can’t find a suitable deal for minority partners, it has not ruled out a full spin of the network, according to CNBC citing a person familiar with the matter.

Iger has resisted spinning off ESPN in the past and told CNBC he wanted to stay in the sports business. 

Iger is looking for partners who bring advantages to ESPN in either content or distribution. Still it’s unclear if another strategic company would have any interest in owning a minority stake in ESPN. If Disney is the majority owner, it would control the fate of the network.

According to The NYTimes, ESPN's dual revenue stream — fees from cable subscribers and advertising — the sports juggernaut has earned earn billions of dollars for Disney. In the first six months of the 2023 fiscal year, Disney’s cable networks division, which is anchored by ESPN and its spinoff channels, generated $14 billion in revenue and $3 billion in profit.

The problem: Wall Street is fixated on growth. Revenue for those six months was down 6 percent from a year earlier, as profit plunged 29 percent.