Throughout the entertainment industry, a clear trend has emerged: linear TV and streaming must be separated and, in some cases, future-oriented.
Warner Bros. was Discovery is in the process of splitting itself into two companies before Paramount swoops in to buy the entire company, but Paramount runs its TV and streaming assets from within two different silos itself. NBCUniversal transferred most of its linear business to Versant, keeping only two brands (NBC and Bravo) for itself.
Don’t expect Disney to follow suit, at least not anytime soon.
During the company’s fiscal Q2 earnings call, Disney CFO Hugh Johnston explained the company’s thinking regarding linear versus streaming, and how it views them all as connected.
“These networks are best viewed as brands with studios producing content e.g Bear or Shogun“We monetize that content across multiple distribution platforms,” Johnston said of Disney’s linear entertainment brands like FX and Disney Channel. “Separating these monetization platforms into separate businesses is very complex and, in our view, unlikely to create additional shareholder value, especially given where the networks are valued in today’s market.”
“Secondly, we’re managing a migration to monetize these brands, and we’re actually a long way down that migration path,” he continued. “We’re more than doubling revenue at Disney Entertainment in streaming, if we look at it, this most recent quarter. So the linear revenue base is getting smaller and smaller every quarter within our P&L. Finally, yes, linear revenue is declining, but Disney Entertainment as a sector, is growing quite well… So with all the cord-cutting pressures, Disney Entertainment is actually one of the fastest-growing media companies out there, and we’re actually very proud of that.”
Sports are a slightly different story, but again, Disney is framing the connection between streaming and streaming as beneficial, especially with other streaming platforms like Netflix and Prime Video leaning into sports themselves.
“We view ABC as being strategically connected when we think about ESPN and sports in general. Admittedly, sports is a separate discussion because they are still very early in their monetization shift, having just launched [ESPN] “Unlimited last year,” Johnston said. “However, when we look at the streaming market in our competitive set: Netflix, Prime Video, YouTube, Paramount+, they are all increasing their position in live sports.
He continued: “Sports rights are expensive and can be diluted without scale, but we have scale in our most important market, the United States, and the largest sports media brand in the world, at ESPN.” “We view sports as a core part of our programming strategy. ESPN as an important contributor to our distribution portfolio. Certainly, we have to continue to work through ESPN’s economic transformation, while also leveraging it better in our overall business.”
It’s a message meant to show the Street that the company has a strategy in place that includes both linear and streaming, a strategy that looks different when compared to many of its peers, though whether it pays off may depend on how ESPN makes the shift.
If Disney changes its mind, it seems clear that ESPN and ABC will be the ones to hit the market, with brands like FX and Disney Channel remaining in the market.
“When it comes to allocating capital, we always evaluate the value of our portfolio to shareholders and look to maximize it,” Johnston said. “This is our responsibility to shareholders, and we will continue to do so in the future.”
